Fraud Reporting 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.
One threshold decides whether the report goes to the audit committee in two days or to the Central Government over sixty.
The fraud reporting obligation
If the auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall report the matter to the Central Government.
However, as per the Companies (Amendment) Act, 2015, the auditor shall report only those matters to the Central Government which involves or is expected to involve individually an amount of INR One Crore or above.
Below one crore, the report goes internally and fast: the auditor shall report the matter to the Audit Committee under Section 177 or to the Board immediately within 2 days of his knowledge of the fraud, and it is disclosed in the Board's Report.
Above one crore, the process is external and deliberate — the auditor writes to the Board or audit committee, waits up to 45 days for a reply, and then has 15 days to send everything to the Central Government.
At first sight that seems inverted: the larger fraud gets the longer process. The reason is what each route is for.
The two-day internal route is a warning. It exists so that governance can act — freeze an account, suspend an employee, commission an investigation — before evidence disappears. Speed is everything and no external process would be faster.
The sixty-day external route is an accusation to the State, and it can lead to prosecution. Before that happens, the company must be heard. Hence the 45 days for the Board's reply or observations, which travel to the Government alongside the auditor's report and his comments on such reply or observations. The Government sees both accounts.
The safeguard against a company simply not replying is explicit: where the auditor fails to get any reply or observations within the stipulated period of 45 days, he shall forward his report to the Central Government along with a note containing the details of his report that was earlier forwarded. Silence delays nothing.
Note the standard that triggers the whole machinery: reason to believe. Not proof, not certainty. An auditor who waits for conclusive evidence has already breached the obligation.
The two fraud reporting routes
| Below INR 1 crore | INR 1 crore or above | |
|---|---|---|
| Reported to | Audit committee or the Board | Central Government, after the Board |
| Timeline | Within 2 days of knowledge | 45 days for reply, then 15 days to the Government |
| Disclosure | In the Board's report | Report in Form ADT-4 |
| If no reply | Not applicable | Forward with a note recording the earlier report |
The form and its delivery
The report shall be in the form of a statement as specified in Form ADT-4 on the letter-head of the auditor containing postal address, e-mail address, contact number, Membership Number and be signed & sealed by the auditor and same shall be sent through Registered Post with AD / speed post followed by an e-mail in confirmation to the Secretary, MCA.
The delivery requirements are unusually prescriptive, and for good reason. Registered post with acknowledgement due creates proof of dispatch and receipt; the confirming e-mail creates a second, dated record. An auditor discharging this obligation needs to be able to prove they did.
The sequence above one crore
- On knowledge of the fraud, forward the report to the Board or audit committee immediately, seeking reply within 45 days.
- On receipt, forward the report, the reply or observations, and the auditor's comments to the Central Government within 15 days.
- If no reply arrives within 45 days, forward the report with a note recording that fact.
- Use Form ADT-4, signed and sealed, by registered post or speed post.
- Follow with a confirming e-mail to the Secretary, MCA.
Common mistakes
- Waiting for proof rather than acting on reason to believe.
- Missing the two-day internal fraud reporting deadline for smaller amounts.
- Treating an unanswered request to the Board as suspending the obligation.
- Sending the report by ordinary means without a record of dispatch.