Shell Companies

A Shell company is described as a non-trading organisation that does not engage in any activity but exists only as medium for another organisation’s business activity.

In India, there is no clear definition of shell companies. However, typically shell companies include multiple layers of companies that have been created for purpose of diverting money or for money laundering.

Most shell companies do not manufacture any product or deal in any product or render nay service. They are mostly used to make financial transactions. Generally, these companies hold assets only ono paper and not in reality. These companies conduct almost no economic activity.

What are the Concerns

Given the umpteen instance of individuals and corporates abusing shell companies, either to avoid taxes or use them as conduit for money laundering, these are generally viewed as dubious and questionable enterprises.

According to the data provided by Finance Ministry, there are about 1.5 million registered companies in India, while only 600,000 companies file their annual return. This means large number of these companies may be indulging in financial irregularities.

Recent Efforts Of The Government

This September, a Memorandum of understanding(MOU) was signed between the ministry of corporate affairs (MCA) and central board of direct taxes(CBDT) regarding sharing of data and information with each other on an automatic regular basis.

In August, SEBI (The Securities and Exchange Board of India) direct stock exchanges to initiate action against 331 suspected shell companies and bar them from trading.

Similarly, MCA cancelled the registration of around 2 lakh defaulting companies.

Finance ministry directed banks to restrict operations of the bank accounts of suspected companies by directors of such companies or their authorized representatives.

Following this, MCA has identified more than 1 lakh directors for disqualifications under Section 164(2)(a) of the Companies Act, 2013.

Importance of such efforts

These moves are targeted to curb the menace of shell companies, money laundering and black money in the country and prevent misuse of corporate structure by shell companies various illegal purpose.




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