Duties Of Chief Financial Officer Under Companies Act.
1. Overview
The Chief Financial Officer (CFO) is a Key Managerial Personnel (KMP) under Section 2(51) of the Companies Act, 2013, responsible for managing the financial affairs of the company.
The role of the CFO is strategic and statutory, ensuring that the company’s financial reporting, compliance, and risk management are accurate and reliable.
2. Statutory Basis
Section 2(51) – Defines CFO as a Key Managerial Personnel.
Section 134 – CFO must certify the financial statements along with MD/CEO.
Section 204 – CFO must ensure that secretarial and audit compliance is maintained in coordination with the Company Secretary and auditors.
Section 177 – CFO works closely with the Audit Committee for reporting frauds and irregularities.
Section 188 & 188(2) – CFO must report and advise on related-party transactions to ensure proper disclosures.
SEBI LODR (Regulation 17 & 22) – Listed companies’ CFO responsible for accurate financial disclosures, risk management, and whistleblower compliance.
3. Key Duties of CFO
| Duty | Description | Legal Reference |
|---|---|---|
| Financial Reporting | Certify and ensure correctness of financial statements, annual reports, and other disclosures. | Section 134, 177; SEBI LODR Reg. 33 |
| Internal Controls | Establish and monitor internal controls over financial reporting, accounting, and risk management. | Section 177, 143 |
| Compliance with Laws | Ensure adherence to Companies Act, SEBI regulations, tax laws, FEMA, and other applicable statutes. | Section 134, SEBI LODR |
| Fraud Reporting | Report any identified or suspected frauds to Audit Committee and Board of Directors. | Section 143(12), 177 |
| Related Party Transactions | Review, certify, and report related-party transactions. | Section 188 |
| Audit Coordination | Liaison with statutory and internal auditors; provide information and certifications. | Section 143, 177 |
| Risk Management | Monitor financial risks and advise board for mitigation measures. | SEBI LODR Reg. 17 |
| Vigil Mechanism & Whistleblower Policy | Support establishment and operation of whistleblower mechanism for finance-related complaints. | Section 177(9) |
4. CFO Liability
CFO can be held civilly, criminally, or regulatorily liable for:
Misrepresentation of financial statements.
Non-compliance with statutory obligations.
Concealment of fraud.
Improper reporting of related-party transactions.
Penalties: Fines, imprisonment, and disqualification as per Companies Act, 2013.
5. Case Laws Illustrating CFO Duties and Liability
Case 1: Satyam Computers Ltd. (2009)
Facts: CFO involved in manipulation of accounts and falsification of financial statements.
Outcome: CFO held liable alongside promoters; criminal proceedings initiated.
Significance: Highlights CFO’s responsibility for accurate financial reporting under Section 134.
Case 2: ICICI Bank – Loan Governance Matter (2018)
Facts: CFO implicated in inadequate reporting of related-party loans and conflicts of interest.
Outcome: Regulatory investigation by SEBI and board oversight.
Significance: Shows CFO duty to ensure proper disclosure and compliance in related-party transactions.
Case 3: Punjab National Bank Fraud (Nirav Modi Case, 2018)
Facts: CFO and finance officers failed to detect unauthorized LoUs.
Outcome: CFO liable for internal controls and reporting failures.
Significance: Reinforces CFO’s duty to maintain financial controls and risk management.
Case 4: Yes Bank Crisis (2020)
Facts: CFO involved in reporting of NPAs and monitoring risky loans.
Outcome: Regulatory intervention; CEO and CFO replaced.
Significance: Highlights CFO accountability for monitoring financial risks and disclosures.
Case 5: Kingfisher Airlines Ltd. (2012–2013)
Facts: CFO failed to ensure proper reporting of cash flows and fund diversion.
Outcome: SFIO investigation; promoters and KMP penalized.
Significance: Emphasizes CFO’s role in internal financial controls and statutory compliance.
Case 6: Reliance Industries Ltd. – Financial Reporting Allegations (2013–2014)
Facts: CFO’s reporting of accounts questioned for potential misstatements.
Outcome: SEBI investigation required explanation and certification.
Significance: Even potential misstatements make CFO liable for scrutiny and accountability.
6. Best Practices for CFOs
Regularly review financial statements for accuracy and compliance.
Maintain robust internal control systems for fraud prevention.
Ensure proper coordination with audit committees and statutory auditors.
Adopt risk management frameworks to track financial and operational risks.
Report related-party transactions diligently and ensure disclosure.
Support whistleblower mechanisms and act on financial complaints ethically.
7. Key Takeaways
CFO is a statutory key managerial personnel responsible for financial integrity.
Liability arises from misreporting, negligence, or fraud concealment.
Case laws show CFO accountability in listed and unlisted companies.
Proper compliance, internal controls, and ethical reporting reduce liability risk.
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