1. How Modi’s crackdown on shell companies has waged war on black money post demonetisation

How Modi’s crackdown on shell companies has waged war on black money post demonetisation

58,000 bank accounts involving 35,000 companies deposited and withdrew Rs 17,000 crore post demonetisation. Does it mean that black money turned into white? Not necessarily.

By: | Updated: November 7, 2017 1:37 PM
black money, demonetisation, noteban, notebandi, corruption, india corruption About 58,000 bank accounts involving 35,000 companies, which have deposited and withdrawn Rs 17,000 crore post demonetisation. (Image: PTI)

A bank account had a negative balance on November 8, 2016 — the day of demonetisation. After Prime Minister Narendra Modi announced a ban on high-value notes, not only did the account become active, but as much as Rs 2,484 crore was deposited in it in old notes of Rs 500 and Rs 1,000, before all of the money eventually withdrawn in new and valid notes. A company even had as many as 2,134 bank accounts in its name. Does it mean that the demonetisation drive allowed the conversation of black money into white?

Not necessarily. In fact, about 58,000 bank accounts involving 35,000 companies, which have deposited and withdrawn Rs 17,000 crore post demonetisation, are under the Finance Ministry’s scanner. The Ministry of Corporate Affairs (MCA) also struck off around 2.24 lakh companies which were inactive for two years or more, most of which are suspected to be shell companies.

Post-demonetisation, Prime Minister Narendra Modi had asked the authorities concerned — the Enforcement Directorate and the Income Tax Department — to launch a massive crackdown on shell companies, which give platforms for syphoning off money. The government recently said that more than 1.06 lakh directors would be disqualified for their association with shell companies.

What are shell companies?

India does not have a definition of shell companies. As the word ‘shell’ suggests, a company has only an outer layer of being called a corporate entity and does not have any active business operation. The shell companies are generally understood as firms set up with minimal capital and assets. Most of the shell companies are registered in tax havens, where there is nil or low tax. Interestingly, having a shell company is illegal in India.

Since shell companies are not illegal in India, it gets really difficult to track genuine transaction and transactions meant to syphon off money or money laundering. Shell companies come under the radar once they are found any one of these three laws: Benami Transaction (Prohibition) Amendment Act 2016, The Prevention of Money Laundering Act 2002, and The Companies Act, 2013.

How are shell companies used for money laundering?

Shell companies are being massively for money laundering, tax evasion and turning white money into black and back to while. Take a case: A company X is a registered company with SEBI. It needs to purchase shoes worth 10,000 crore, but it wants to show an inflated bill of Rs 20,000 core. How does the company do it? It sets up a shell company Y in a tax-haven country, say,  Bahamas, and lets it first purchase the shoes for Rs 10,000 crore and later buys it for Rs 20,000 crore.

While Y is a bogus company set up by X, the cash that was actually spent was Rs 10,000 crore, while in the books it showed an expenditure of Rs 20,000 crore. Similar kind of embezzlement is done through a complex web of a series of shell companies.

How government is planning to curb black money through crackdown on shell companies:

Of the 15 lakh registered companies in India, only six lakh of them file their annual returns. In the past three decades, 1,155 shell companies have been used by various channels by more than 22,000 beneficiaries to conceal around Rs 13,300 crore.

  1. The Enforcement Directorate conducted nation-wide raids on April 1 in 16 states swooping down at marketplaces, business centres, residential premises and even houses put up on rent to hunt down allegedly dubious and suspicious firms which the agency believed were the “backbone” of black money in the country. The ED teams had visited at least 110 locations in cities like Kolkata, Mumbai, Ahmedabad, Panaji, Kochi, Bengaluru, Hyderabad, Delhi, Lucknow, Patna, Jaipur, Chandigarh, Jalandhar, Srinagar and Indore besides some in Haryana.
  2. The government even said that more than 1.06 lakh directors would be disqualified for their association with shell companies and the role of auditors have come under the scanner for alleged connivance in facilitating illegal transactions.
  3. The government in September had directed freezing bank accounts of more than 2.09 lakh companies whose names have been struck off from the records and said action would be taken against more such firms.
  4. The government will invoke the Benami Transactions (Prohibition) Amendment Act for harsh action against those involved.

(First published on November 6, 2017, on www.financialexpress.com)

  1. Sridhar Reddy
    Nov 12, 2017 at 4:07 pm
    Dont u c the govt has already got 1 lakh crore of black money into govt accounts. Modi has stopped many other big loots indirectly at least another 50,000 crores is in govt account. Normal tax collection has increased in these last 3 yrs that another 50,000 crores. Now central govt is rich in India compared to some other developing countries otherwise when fakegandhis-khangress rulled the central govt was always in deficit since they were looters. NOW AFTER DEMO ALL COWARDS AMOUNTS ARE RECORDED IN BANKS WITH ADHAAR OR CITIZENSHIPNO UPDATION WE CAN CATCH THE CROOK. These crooks were lending for 10 interest rates to poor business people whereas the bank charges is 1 . Do u understand these - i am sure u wont, since ur a papu. NOW DIGITAL TRANSACTIONS HAS IMPROVED. During DEMON atleast 60 population learnt newly to mobile phones for amount transfers using ewalets for small amount transactions. NEXT MODI WILL ENFORCE IT ON 90 TRANSACTIONS OFTHE COUNTRY
    Reply
    1. S
      sudheermehta
      Nov 11, 2017 at 12:58 pm
      Fight against corruption by Modi Govt. is lot of hot air publicity. Let me know a single prosecution of politicians / bureaucrats since Modi assumed power. On the other hand Kalmadi, Raja, Kanimozhi like heavy weights were in jail during UPA regime. Modi company just make public statements for votes without any Governance - Vadra, Sonia, Augusta Wastland, 2 G, CWG, Coal scandal, Qurreshi etc. all pending!!!!! "achhe din"???? Its a Business friendly Govt. - has heavily burdened retired senior citizens by reducing their interest earnings. It is shameful that this Govt. charges Service Tax on MEDICLAIM policies of old people instead of giving FREE MEDICARE.
      Reply
      1. S
        Suresh Bhave
        Nov 10, 2017 at 5:37 pm
        Very creditable. OK, the amount that the PM suspected would not come back to the banks did come back, but got identified and open to investigation. The PMO should contact people in all languages. The arrival of this news is already too late and the opposition has had a field day spreading disinformation.
        Reply
        1. H
          Hrishkesh
          Nov 10, 2017 at 1:50 pm
          After reading this article, if anyone doesn't vote for Narendra Modi in the next election, then I would consider him an anti-national.
          Reply
          1. S
            sudheermehta
            Nov 11, 2017 at 1:14 pm
            Ridiculous - Modi is big anti-national as he only gives lip-service to nationalistic jingoism but does nothing? His actions like demonetisation rhetorics are hollow. Kneels down in front of Chinese, unable solve Kashmir problem even after 3.5 years - Pandits or we can't settle in Kashmir, ties-up with Mahbooba for power. Show me a single prosecution on corruption trotted out by Modi in his 2013-14 election campaign, naming Adarsh ghotala, Vadra, Gandhis, ManMohan etc.??? This Govt. fleecing, retirees, senior citizens, middle class. Shameful senior have to pay Tax on 'MEDICLAIM' policy premiums. Good Governance, speedy justice nowhere in site you have police atrocities like RECENT Gurgaon ( Ashok Kumar ) case etc.
            Reply
          2. S
            SHANKARANARAYANA
            Nov 10, 2017 at 12:19 pm
            Really a great step in curbing black money and more than 90 of the public are not aware this modus ope i by these fraudsters in looting the country.
            Reply
            1. V
              vijay uppal
              Nov 10, 2017 at 11:45 am
              one of the best steps to root out the source to convert black money in to white. terror funding is done only by black money. this will be a big step to curb the terrorism. thanx to modiji, am proud that our nation is now having a really responsible PM. and who is determined to root out all problem of this country.
              Reply
              1. S
                sudheermehta
                Nov 11, 2017 at 1:07 pm
                Ah, all hogwash? Show me a single prosecution on corruption trotted out by Modi in his 2013-14 election campaign, naming Adarshghotala, Vadra, Gandhis, ManMohan etc.??? This Govt. fleecing, retirees, senior citizens, middle class. Shameful senior have to pay Tax on 'MEDICLAIM' policy premiums. Good Governance, speedy justice nowhere in site you have police atrocities like RECENT Gurgaon ( Ashok Kumar ) case etc.
                Reply
                1. Sridhar Reddy
                  Nov 12, 2017 at 4:04 pm
                  i think ur a-papu. Dont u c the govt has already got 1 lakh crore of black money into govt accounts. Modi has stopped many other big loots indirectly at least another 50,000 crores is in govt account. Normal tax collection has increased in these last 3 yrs that another 50,000 crores. Now central govt is rich in India compared to some other developing countries otherwise when fakegandhis-khangress rulled the central govt was always in deficit since they were looters. NOW AFTER DEMO ALL COWARDS AMOUNTS ARE RECORDED IN BANKS WITH ADHAAR OR CITIZENSHIPNO UPDATION WE CAN CATCH THE CROOK. These crooks were lending for 10 interest rates to poor business people whereas the bank charges is 1 . Do u understand these - i am sure u wont, since ur a papu. NOW DIGITAL TRANSACTIONS HAS IMPROVED. During DEMON atleast 60 population learnt newly to mobile phones for amount transfers using ewalets for small amount transactions. NEXT MODI WILL ENFORCE IT ON 90 TRANSACTIONS OFTHE COUNTRY
              2. H
                HeshMesh
                Nov 10, 2017 at 9:11 am
                Very poorly written. Full of errors and contradictions.
                Reply
                1. S
                  Sunflower
                  Nov 10, 2017 at 3:19 am
                  Very interesting effect of demonetization
                  Reply
                  1. K
                    Kannan
                    Nov 6, 2017 at 3:46 pm
                    17000 Crores of deposits is CHICKEN FEED. The government lacks the POLITICAL WILL or the ABILITY to go after the SHARKS. SHAME on them. The poor and middle class will benefit should the government find the courage to prosecute crooks in the BJP, other parties and corrupt launderers not directly linked to any party.
                    Reply
                    1. S
                      Suresh Bhave
                      Nov 10, 2017 at 5:33 pm
                      Not at all. Investigation takes time. These are wrongdoings accumulated over past decades and cannot be cleared up overnight. The sharks are actually on the run, or fast swim. Point out the crooks in BJP.
                      Reply
                      1. S
                        sudheermehta
                        Nov 11, 2017 at 1:00 pm
                        Ah? Show me a single prosecution on corruption trotted out by Modi in his 2013-14 election campaign, naming Vadra, Gandhis, ManMohan etc.???
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