PMO Plans Crackdown On Shell Companies

A high level meeting was held in the PMO today to review the action taken against "shell companies" as a follow up to demonetisation.

The meeting was attended by senior officers of various departments. Government sources told Outlook that the focus remained on unearthing black money and to prevent money laundering.

Shell companies, which do not conduct any real operations, are used mainly for money laundering and tax-evasion.

There are about 15 lakh registered companies in India; and only 6 lakh companies file their annual return. "This means that large number of these companies may be indulging in financial irregularities," sources said.

A Task Force with members from various regulatory Ministries and Enforcement Agencies has been set up under the Co-chairmanship of the Revenue Secretary and Corporate Affairs Secretary to monitor the actions taken against deviant shell companies by various agencies. The concerned regulatory Ministry will ensure that disciplinary actions are initiated against the professionals indulging in mal practices and abetting the entry operators of the shell companies.

According to sources, the crackdown on these deviant companies will include harsh punitive actions including freezing of Bank Accounts, striking off the names of dormant companies, invocation of Benami Transactions (Prohibition) Amendment Act, 2016.

In the initial analysis it has been found that ‘Shell Companies’ are characterized by nominal paid-up capital, high reserves & surplus on account of receipt of high share premium, investment in unlisted companies, no dividend income, high cash in hand, private companies as majority shareholders, low turnover & operating income, nominal expenses, nominal statutory payments & stock in trade, minimum Fixed Asset.

In a small sample analysis of such companies it has been found that Rs.1,238 crore cash has been deposited in these entities during November-December period. Serious Fraud Investigation Office (SFIO) has filed criminal prosecution for cheating National Exchequer after investigation of entry operators running a group of 49 Shell Companies and other proprietorship concerns. It has been found that 559 beneficiaries have laundered money to the extent of Rs.3900 Crore with the help of 54 Professionals who have been identified. These information has been shared with SIT, Income Tax Department, Enforcement Directorate, SEBI and The Institute of Chartered Accountants of India (ICAI). Income Tax Department has reopened completed assessment in these cases and Enforcement Directorate has initiated action under Prevention of Money Laundering Act (PMLA), 2002. ICAI has also initiated disciplinary proceedings against its members. Winding up process has been initiated in respect of 49 Shell Companies.

In order to create a credible deterrence a “Whole of Government Approach” will be adopted through coordinated efforts and by leveraging technology. It has also been decided that appropriate red flag indicators would be used for identifying shell companies, and a data base of such companies and their Directors would be built by pulling in information from various agencies. The data base will also capture Aadhar number of individual Directors in the companies.