SFIO probing 33 firms with Chinese investments for financial irregularities

The Indian government has been tightening oversight of Chinese-linked businesses

The Serious Fraud Investigation Office (SFIO) is currently investigating 33 companies with Chinese investments over alleged financial irregularities such as fund diversion and regulatory violations, a government official said.

The Ministry of Corporate Affairs has finalised reports on 650 cases on companies with Chinese investments, of which 33 are under SFIO probe. In parallel, bank accounts associated with some of these firms have been seized, the official, familiar with the matter, told Moneycontrol.

The Indian government has been tightening oversight of Chinese-linked businesses amid concerns over financial transparency and security risks. In August 2024, the MCA had flagged hundreds of Chinese firms for suspected irregularities, with many struck off for non-compliance. These firms, operating across 17 states, were found to have violated incorporation norms, leading to enhanced scrutiny from regulatory bodies.

“The ongoing investigations emphasise the need for transparency and adherence to regulatory norms. Seizure of bank accounts of some of these shell companies is also ongoing,” the official said.

The Ministry of Corporate Affairs (MCA) has been actively scrutinising Chinese companies for compliance issues and fraudulent activities. Investigations have revealed that many of these entities are non-existent at their registered addresses or have diverted from their stated business purposes. Some companies have Indian directors, but their bank accounts are operated from China, raising concerns about incorporation-related frauds, he said.

Several Chinese nationals on the boards of various Indian companies received notices from the MCA last year for alleged violation of company rules. Some of the directors who received the notices were on the boards of such shell companies. The notices alleged that the Chinese nationals violated the MCA’s 2022 circular making it mandatory for Indian firms to obtain a security clearance from the Centre while appointing Chinese nationals to the board. The Corporate Affairs Ministry had received inputs on how some of these directors may be operating in India without a security clearance.

After a deadly clash between Indian and Chinese soldiers in the Galwan Valley in June 2020, the government brought in various regulatory measures to check Chinese influence on Indian companies.

This also includes mandatory security clearance from the government for a China-based entity taking the FDI route in India. Chinese entities who want to participate in government-related bidding, too, need the clearance.