The government has not yet deployed an artificial intelligence (AI)-based system to detect suspicious or shell companies, and continues to rely on a rule-based analytical framework under its MCA-21 portal to identify potential corporate fraud and non-compliance, the ministry of corporate affairs (MCA) said in a written reply to Lok Sabha on Monday.

Replying to a question on whether the government has reviewed the campaigns against shell companies, fake directors and suspicious corporate transactions, the ministry said that “no AI based risk analysis system is in use currently.” Instead, it said that “under the MCA-21, a risk-profiling & rule based analytical system for monitoring compliances has been developed to flag potential violations for regulatory scrutiny.”

The disclosure comes amid rising use of AI surveillance tools by regulators globally to identify financial irregularities and suspicious conduct of corporate entities. The MCA said that its existing system relies on predefined red flags rather than AI to identify companies that may warrant enforcement action.

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These include nil or insignificant business activity, nil or insignificant assets, and non-maintenance of the registered office, along with other compliance parameters tracked through the MCA-21 risk-profiling system. All these metrics form the basis for further examination before enforcement action is initiated.

However, the ministry clarified that the term “shell company” is not defined under the Companies Act, 2013. The MCA added that it receives intelligence on companies suspected of fraudulent or suspicious transactions from agencies including the financial intelligence unit (FIU), central economic intelligence bureau (CEIB), regional economic intelligence councils (REICs) and state-level co-ordination committees (SLCCs).

The information serves as inputs for action under the Companies Act. The ministry further said it shares relevant information with other enforcement agencies, including the enforcement directorate (ED), income tax department and GST authorities to facilitate action under their respective laws.