After de-registering 3.38 lakh companies post demonetisation, the Ministry of Corporate Affairs (MCA) will launch the next phase to strike off another 55,000 shell companies during this fiscal. The third phase of the drive will start next month, officials close to the development said.
The ministry has identified over two lakh shell companies in the third phase of the drive aimed at curbing illicit money flow.
Shell companies are those without real business operations or assets. Such companies are mostly set up to hide the ownership details from the law enforcement agencies, money laundering and avoid taxes.
What are shell firms?
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| Shell companies are those without real business operations or assets. They are mostly set up to hide ownership details from the law enforcement agencies, money laundering and avoid taxes |
"About 55,000 companies have been served notices for non-filing of financial statements or annual returns for a consecutive period of two years or more. Their directors have also been served notices. The ones who don't respond and file their financial statements, will be struck off and their directors disqualified, as per the provisions of the Companies Act, 2013," said the official.
Out of 2.06 lakh that have been identified as shell companies, about 1.5 lakh are those which cannot be dissolved as per the current provisions. The list also includes companies from the first and the second phase. The ministry may bring an amendment or ordinance to dissolve these shell companies as under the current laws they can't be deregistered. As per Section 248 of the Companies Act, firms that are listed, delisted for non-compliance of listing agreement, vanishing companies and those facing prosecutions or having outstanding dues of banks or on account of pubic deposits cannot be removed from the register of companies.
"The third phase to de-register the shell or bogus companies will start next month," the official said. The drive was launched by the government post demonetisation as part of the anti-black money measures.
WEEDING OUT
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- 2.26 Lakh – firms were struck off the register in the first phase
- 1 Lakh – companies were deregisterd in the second phase of the drive
- 1.5 Lakh – firms identified this year can’t be dissolved as per the current provisions
- 3.38 Lakh – Deregistered post demonetisation
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So far, 3.38 lakh companies have been de-registered and their directors disqualified. The MCA struck off over 2.26 lakh firms in the first phase and over one lakh in the second phase of the drive during 2017-18 and 2018-19 respectively.
Section 248(1) (c) of the Companies Act provides for the removal of the name of the company from the register of companies in case it is not doing any business or operation for a consecutive two years. Similarly, the directors can be disqualified under section 164(2) for non-filing of financial statements or annual returns for a period of three years by the companies.
The ministry will also ask the Central Board of Direct Taxes (CBDT) to provide permanent account numbers (PANs) of the companies de-registered so far. "The MCA will then write to the banks to freeze their bank accounts. Almost half of the de-registered companies have not provided their PANs," another official said.
Though the shell companies have not been defined under the law, the term is used for companies created for money laundering and tax evasion.
The modus operandi used by these companies to convert unaccounted cash or black money into white is by showing business transactions on paper as legitimate.
A task force, co-chaired by MCA secretary and revenue secretary, was set up in February 2017, with a mandate to check the menace of shell companies indulging in illegal activities. Prime Minister's Office (PMO) reviews action taken against shell companies from time to time.
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