Forensic audit explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Directors and lenders often say "forensic audit" as if one law prescribed it. None does. A forensic review is an engagement that digs into records after something looks wrong, and it can start from several different legal routes or from a purely commercial decision. Knowing which route you are on tells you who is in charge, what powers they hold and what can follow.
This guide maps those routes for the board and finance head of a company, and for the adviser who is asked "who can order this, and what happens next?"
The Companies Act, 2013 does not define or prescribe a "forensic audit". Its phrase "forensic audit" appears only in the list of fields from which experts of the Serious Fraud Investigation Office are drawn (section 211(2)(iv)). The Act does provide separate routes: the auditor's fraud report, the Registrar's inquiry, an order of the Central Government, assignment to the SFIO, a Tribunal order and the inspection of ownership. The insolvency and money-laundering laws add their own. A board or lender can also commission a forensic review by contract, with no statutory power at all.
Why "forensic audit" is not one thing
A statutory audit gives an opinion on financial statements. A forensic engagement asks a narrower and harder question: what happened to this money, this stock or this transaction, who did it, and can it be proved? The Companies Act speaks of investigation and inspection and of fraud. The professional standards for forensic work are separate; see our post on the framework for forensic accounting and investigation. If you are weighing a review of a target or a borrower, our financial and legal due diligence service uses the same routes as a checklist.
The routes the Companies Act provides
| Route | Section | Who orders | Who conducts | Outcome |
|---|---|---|---|---|
| Auditor's fraud reporting | 143(12) | Duty of the auditor | The auditor | Report to the Central Government, or to the audit committee or Board in the cases the proviso names |
| Registrar's inquiry | 206 | The Registrar | The Registrar, by notice | Information, documents, books for inspection |
| Investigation by inspectors | 210 | Central Government | Inspectors it appoints | Report to the Central Government |
| SFIO investigation | 211, 212 | Central Government assigns | SFIO Investigating Officer | Report to the Central Government |
| Tribunal-led route | 213 | The Tribunal | Inspectors appointed by the Central Government | Report; fraud findings lead to section 447 |
| Ownership inquiry | 216 | Central Government | Inspectors | Identification of the persons really interested or in control |
| Fraud offence | 447 | Prosecution after a finding | Court | Punishment; see the live post for the figures |
Fraud reporting by the auditor (section 143(12))
If an auditor has reason to believe that an offence of fraud involving the prescribed amount or amounts is being or has been committed in the company by its officers or employees, the auditor must report to the Central Government within the time and manner prescribed. The first proviso sends smaller frauds to the audit committee or the Board. The second proviso requires the company to disclose in the Board's report the frauds reported to the committee or Board but not to the Central Government. The amount and timelines sit in the rules; read them in the posts on fraud reporting under section 143(12) and on the audit and auditors rules, not from this article.
The Registrar (section 206)
On scrutiny of a filing, or on information received, the Registrar may by written notice require the company to furnish information or explanation or to produce documents within the time specified (section 206(1)). If nothing is furnished, if the reply is inadequate, or if the Registrar is satisfied that an unsatisfactory state of affairs exists, a second written notice can call for books of account and papers for inspection, after the Registrar records reasons in writing (section 206(3)).
Investigation and the SFIO (sections 210 to 213)
Section 210(1) lets the Central Government order an investigation on a report of the Registrar or an inspector, on intimation of a special resolution of the company, or in the public interest. If a court or the Tribunal orders that the affairs ought to be investigated, the Central Government shall order one (section 210(2)). Section 212 permits the Central Government to assign a case to the SFIO. Once a case is assigned, no other investigating agency proceeds in respect of an offence under the Act, and the company, its officers and employees are responsible for giving the Investigating Officer information, explanation, documents and assistance (section 212(2) and (5)). The Investigating Officer has the powers of an inspector under section 217; see the posts on inspection, investigation and the SFIO and on section 217.
Section 213 lets the Tribunal order an investigation on an application by members who meet the numbers the section prints, or on an application by any other person on the circumstances it lists. Section 216 allows the Central Government to appoint inspectors to find the true persons financially interested in, or in control of, the company, including its beneficial owners.
Fraud as an offence (section 447)
Section 447 defines fraud in relation to the affairs of a company and states its punishment. The post on section 447 carries the text and the figures as they stand; this article gives none.
Routes outside the Companies Act (by link only)
| Route | Where to read |
|---|---|
| Review of transactions in an insolvency | Forensic audit in insolvency |
| Money-laundering law | Section 3 of the PMLA, 2002 |
A board or a lender can also hire a forensic reviewer under an ordinary engagement letter. That is practice, not a legal requirement: the reviewer has only the access the company gives, and no power to compel anyone. Listed companies have further requirements, not covered here.
Worked example: an auditor finds a pattern
Mandhata Polymers Private Limited (invented) has an auditor who finds a series of payments to a vendor with no delivery records. The routes in sequence:
- The auditor forms a belief of fraud and reports under section 143(12), to the Central Government or to the audit committee or Board, depending on the prescribed amount.
- The board meets, preserves the records and may commission a forensic review by contract to establish the facts.
- The Registrar may, if the company's filings attract scrutiny, issue a notice under section 206.
- The Central Government may order an investigation under section 210 or assign it to the SFIO under section 212.
- If a prosecution follows, section 447 applies to a person found guilty of fraud.
- If the company later enters insolvency, the transaction review routes in that law may reopen the payments.
The company's duty throughout is to furnish what is asked and not to destroy records.
Common lapses
- Treating a contractual review as if it had statutory powers.
- Delaying the auditor's reporting to avoid the Board's displeasure.
- Not preserving records and e-mails once suspicion arises.
- Confusing an inquiry under section 206 with an investigation under section 210.
Need help with a forensic review or due diligence?
If you must decide whether a review is needed, scope one, or understand what a notice or investigation means for the company, our financial and legal due diligence team can map the facts, the records and the route ahead.
Key takeaways
- "Forensic audit" is not defined in the Companies Act; its routes are investigation, inspection and fraud provisions.
- The auditor's duty under section 143(12) is separate from any board decision to commission a review.
- The Registrar, the Central Government, the SFIO and the Tribunal each have different triggers.
- A contractual forensic review has no powers of compulsion.
- Preserve records at the first sign of suspicion.
Read next
- Statutory audit, investigation and forensic audit compared
- Crisis management for a company board
- Fraud risk, red flags and detection techniques
Disclaimer: Based on the Companies Act, 2013 (MCA consolidated text) and, for the Essential Commodities Act, 1955, the India Code text showing amendments up to Act 40 of 2021, as consulted on 6 October 2026. Later amendments, rules, notifications and control orders should be checked in their current form. Checklists, report outlines and examples are illustrative drafting by TaxClue with invented names and figures. This article is general information, not legal advice; check the official text before acting.