28 Sep

Crackdown on Shell Companies and its Directors

Close to 3,00,000 (Three Lakh) Directors of shell companies have been disqualified under Section 164(2)(a) of the Companies Act, 2013 by the Ministry of Corporate Affairs. Earlier this year, the Government had cancelled the registration of over 2.09 lakh shell companies which were not carrying out any active business for a long time. Banks were also directed to restrict the operations of all these shell companies.

As per some leading newspapers, the Government has shortlisted around 16,794 shell companies after considering inputs from all investigative agencies. This mostly includes real estate, finance and entertainment companies.

The Government obtains the power to strike-off names of the Company from the Register of Companies under Section 248 of the Companies Act, 2013. Section 164(2)(a) of the Companies Act, 2013 disqualifies an individual or a Director who is or has been a Director of the Company which has not filed financial statements or returns for any continuous period of three financial years. The Act clearly states that the Director would not be eligible for re-appointment in the same company or any other firm for five years.

As per the statement issued by the Government on September 6, 2017, any Director or Authorized Signatory of a “struck-off” Company should not try to transfer any money from the bank account. This would attract severe punishment of 10 years imprisonment.

The Government is also keeping a close watch on the 11 lakh Companies registered under the Companies Act. The purpose behind this activity is to identify active and legitimate companies and wipe out the shell or dormant companies which will in-turn expand the tax base and curb money-laundering.

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