Paymoney Ltd. is recently established payment bank which provides UPI services to the common man. The company desired to draft Fraud Risk Management policy, hence seeks your advice on the following: (i) The criminal and

Fraud is an act or omission which is intended to cause wrongful gain to one person and wrongful loss to the other, either by way of concealment of facts or otherwise. Under Criminal Law Section 25 of the Indian Penal Code, 1860 defines the word, "Fraudulently", which means, a person is said to do a thing fraudulently if he does that thing with intent to defraud but not otherwise. Further according to section 17 of the Indian Contract Act, 1872, 'fraud' means and includes any of the following acts committed by a party to a contract, or with his connivance (intentional active or passive acquiescence), or by his agent with intent to deceive or to induce a person to enter into a contract. The suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be true; The active concealment of a fact by a person having knowledge or belief of the fact; A promise made without any intention of performing it; Any other act fitted to deceive; Any such act or omission as the law specially declares to be fraudulent. The Companies Act 2013 has also explained fraud. Explanation to Section 447 defines "fraud", which reads as under: "fraud" in relation to affairs of a company or anybody corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss. A definition of fraud has been suggested in the context of electronic banking in the Report of RBI Working Group on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds, which reads as under: "A deliberate act of omission or commission by any person, carried out in the course of a banking transaction or in the books of accounts maintained manually or under computer system in banks, resulting into wrongful gain to any person for a temporary period or otherwise, with or without any monetary loss to the bank". It may be advised to Paymoney Ltd. that Fraud Risk Management policy should include the following: Defining fraud: This shall cover activities which the company would consider as fraudulent. Defining Role & responsibilities: The policy may define the responsibilities of the officers who shall be involved in effective prevention, detection, monitoring & investigation of fraud. The company may also consider constituting a committee or operational structure that shall ensure an effective implementation of anti-fraud strategy of the company. This shall ensure effective investigation in fraud cases and prompt as well as accurate reporting of fraud cases to appropriate regulatory and law enforcement authorities. Communication channel: Encourage employees to report suspicious cases of fraud/ misconduct. Any person with knowledge of suspected or confirmed incident of fraud/misconduct must report the case immediately through effective and efficient communication channel or mechanism. Disciplinary action: After due investigations, disciplinary action against the fraudster may be considered as per the company's policy. Reviewing the policy: The employees should educate their team members on the importance of complying with Company's policies & procedures and identifying/ reporting of suspicious activity, where a situation arises. Based on the developments, the policy should be reviewed on periodical basis.