Deregistration of 2 lakh firms just tip of iceberg; crackdown on shell companies much deeper

By: | Published: September 6, 2017 4:33 PM

The enforcement agencies have been asked to investigate and identify the whereabouts of 10 lakh companies, which are under the radar of the government.

Only 6 lakh companies out of a total 16 lakh fulfill regulatory requirements. (Image: PTI)

The government’s action yesterday to strike off the names of over 2.09 lakh companies from the register of the Ministry of Corporate Affairs database is apparently just the beginning of the crackdown on shell companies with the probe into the matter running much deeper to include 10 lakh such companies, according to a CNBC TV18 news report.

Freezing the accounts of 2.09 lakh companies is the first phase of its cleanup strategy, the news channel reported citing unidentified sources, adding that the enforcement agencies have been asked to investigate and identify the whereabouts of 10 lakh companies, which are under the radar of the government. It said that only 6 lakh companies out of a total 16 lakh fulfill regulatory requirements.

Earlier yesterday, the Ministry of Finance said it has deregistered over 2.09 lakh companies and has initiated action to restrict their bank account operations, for failing to comply with regulatory requirements. The government has struck off the names of these 2.09 lakh companies from the register of companies, and has barred the directors of these companies from operating the bank accounts till the time the entities are legally restored.

The government has recently taken up a crackdown on shell companies, which are allegedly used as conduits for illicit fund flows and tax evasion. Earlier last month, SEBI had suspended trading in the stocks of 331 suspected shell companies identified by the government. Following demonetisation, the government claims to have identified as many as 37,000 shell companies.

The government action this week comes under the ambit of Section 248 of the Companies Act, which provides the government powers to strike off names of companies from the register on various grounds, including for being inactive for long. The existing directors and authorised signatories of the struck off companies will now become ex-directors or ex-authorised signatories, and will not be able to operate company bank accounts till such companies are legally restored.

The SFIO (Serious Frauds Investigation Office) and the income-tax department will continue the ongoing crackdown on shell companies, the CNBC TV18 report said today, adding that the enforcement agencies have been asked to work in tandem to clean up the system. The idea is to identify real companies and wipe out the dormant or shell companies, as the removal of shell companies will help expand tax base and curb money-laundering, the report said.

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