Fraud Discovered After Employee Resignation: How to Issue a Show Cause Notice?

Issuing a Show Cause Notice for Fraud Detected Post-Employment

How can we issue a show cause notice for committing fraud that was detected after he left the organization and joined another organization?

Do you have incontrovertible evidence of the fraud? If yes, then you may lodge an FIR against the employee. Secondly, you may also conduct the domestic inquiry.

Please note that lodging an FIR and conducting a domestic inquiry are two independent actions. Police investigation and domestic inquiry can both proceed concurrently.

Thanks,

Dinesh Divekar

You can file an FIR for fraud if it falls under the Indian Penal Code (IPC), but not for a domestic inquiry, as domestic inquiries serve no purpose in this context. Since the employer-employee relationship does not exist anymore, he is now considered an outsider who committed fraud while he was an employee.

Conducting the domestic enquiry has its own importance on two counts. These are as below.

Firstly, imagine for a while that the company orders a domestic enquiry and tells the accused to depose before it. The accused appears and, in the enquiry, the misconduct of the employee is established. Management tells the employee to refund the money to the company with interest. The accused accepts it and pays also. Therefore, the matter gets settled. Thereafter, whether to pursue the case through civil court is the management's call. No company would be interested in doing that.

What I have written above may sound a little utopian; nevertheless, we must consider it as one of the possibilities.

The second scenario is as below. Suppose in the domestic enquiry the misconduct is proved. However, the court acquits the accused. In that case, should the court verdict override the domestic enquiry? No. Rather, there are higher court verdicts wherein the high court has held that findings of a domestic enquiry override the court ruling. You may check the following link wherein one such verdict is given by the Hon'ble Madras Court:

http://M.M. Rubber Company Ltd. vs P...September 1985

Thanks,

Dinesh Divekar

You can file an FIR for fraud if it attracts the IPC but not a domestic enquiry (domestic enquiry serves no purpose) since the employer and employee relationship doesn't exist. Now, he is an outsider who has committed fraud when he was an employee.

Thank you all for your valuable suggestions. I wanted to inquire whether a company can include a clause in its terms and conditions stating that at the time of joining, it is made clear to the employee that even if they resign from the organization and join a new one in the future, the company reserves the right to take action against them for any discrepancies reported or observed, even after they have left the company.

Thank you.

Can you please clarify whether your query is related to an actual situation that you are currently facing or if you are looking to frame your policies to cover future situations? Please note that both situations are different. Dinesh's and Vivian's suggestions cover the former scenario.

If your intent or reason for this thread is the latter (to frame your policies to cover future situations), then I think you are only exposing your overall relieving policies, practices, and systems, or the lack thereof. Any employee being relieved is expected to go through processes for no-dues, material handover, etc., which surely would need to include systems that track fraud as a general/regular feature within the company. Hence, if you wish to include the clause you mentioned as part of the joining formalities, you could open yourself or the company to a situation of mistrust or distrust right from the word 'go'. This doesn't bode well for any employer-employee relationship, right? And don't be surprised if you find some good joinees refusing, dropping out altogether, or leaving sooner than later.

Also, what's the timeframe that you wish to cover? If it's perpetual or infinite, then surely you need to be prepared for a legal situation later on. Except in positions that would tend to bring out such fraud situations after relieving (like finance, where such situations arise just before submission of audited results to MCA, etc.), it's always better to tighten the internal systems and processes.

Regards,
TS

Dear Dominic, you are raising queries in installments. You could have provided the complete scenario. As Sateesh has asked, does the query relate to some past incident, or do you want to take precautions for the future?

The unsaid part of your latest post is that you have weak systems and processes, and frauds take a lot of time for their detection. Rather than telling employees that they are liable for disciplinary action if some fraud is detected even after their exit from the company, it is worthwhile to do a complete scrutiny of the records before clearing them. Why not take precautions while the employees are in the system?

What about your internal auditors? What about your external auditors? Are they not accountable if the fraud is not detected? Take the case of Satyam Computers. Recently, ICAI has taken action against the Chartered Accountants for their faulty audit.

Insertion of a clause in the appointment letter is nothing but an open manifestation of your own weakness. If the fraud is detected, then whether the employee is on the roll or not, an FIR can be lodged. However, the raison d'être of management science is to avoid these contingencies. It appears that a time has come for your company to take a leaf out of this science!

Thanks,

Dinesh Divekar

Dear Dominic, you may notify him to be present on a specified date for an inquiry to be conducted. At the same time, inform him that failure to comply will result in criminal proceedings being initiated against him. Since he is no longer associated with the organization, it is at his discretion to attend the inquiry. In case of non-compliance, you may issue a legal notice to him and proceed to file a criminal case. Alternatively, you may lodge a criminal complaint to register an FIR for further action.

Regards.