Shell Cos

Before 2017 hardly any one knew about the Shell companies, in literal words the meaning of Shell Company is Non trading firm ( and often listed on Stock Exchange ) used as a vehicle for various financial manoeuvres or kept in dormant position for future use in some other capacity. But after demonitisation of Nov 2016 these companies are continuously in the news because of money laundering.

During this year the govt has de registered over 2 lakh companies those were inactive for two years or more and did not file the statutory reports, and have dis qualified more than 3 lakh directors. It was known to Registrar of companies for last so many years that there are lakhs of registered companies who are not following the statutory norms but no action was taken. Is it because so many of corrupt politicians and their kin were involved in these shell companies for money laundering and other illegal financial transactions.

In a recent news report, it has come to notice to the govt that out of more than 2 lakhs companies which were de registered around 35,000 companies deposited more than Rs 17,000 crore after the demonitisation was announced and the same amount was later withdrawn also, and action of these companies have raised suspicion of illegal activities. The Govt has asked separately the banks to freeze the bank accounts of all these companies and share data with the govt. Till last week banks have shared the data of around 58,000 companies with the govt. In one instance company with negative balance on Nov 8 2016 deposited about Rs 2,500 Cr and withdrew the same afterwards. In other instance a company was operating more than 2100 bank accounts. The data of such type of companies have been shared with Enforcement Directorate (ED), Tax authorities and Financial Intelligence units (FIU).

Govt’s preliminary inquiry also revealed that over 3000 disqualified directors were directors in more than 20 companies each, which is beyond the limit prescribed by the law. The multi sided action and approach is being driven by Special Task Force (STF) under the Prime Minister’s Office(PMO), which is co chaired by Revenue and Corporate Affairs Secretaries. many corrective measures have been started and govt is also initiating criminal proceedings against these companies and their directors, under the Companies Act. Under the Companies Act these types of irregularities in the companies is defined as Fraud and the stringent punishment of imprisonment up to 10 years is stipulated. Further Ministry of Finance is informed to include as schedule offence under the the Prevention of money Laundering Act. Action against Professional who assisted these shell companies is also pursued.

The above mentioned information is concerning about Registered or Listed Companies ie Private Limited and public limited, there may lakhs of unregistered Partnership and proprietary companies who are also operating as shell companies, who must have closed their bank accounts after money laundering action in convenience with corrupt bank officials. Govt to act against these type of people will be very difficult.

The fact is that the earlier govts never taken the act of money laundering and the role of shell companies seriously as there was rampant corruption in all the Govt departments, but with Modi govt at centre, things are looking differently.

In the end it is the question of one’s dignity to pay tax or not to pay taxes.

Awaiting for your feed backs and comments.