Shell Companies Who Deposited High Value During Demonetization To Face Criminal Action

Shell Companies Who Deposited High Value During Demonetization To Face Criminal Action

Hundreds of “shell companies” which deposited unexplained high-value notes during demonetization or operated bank accounts after their names were struck off could be the first set of entities to face criminal action under the revamped Companies Act as part of the latest government crackdown against those routing funds through a web of firms.

The ministry of corporate affairs (MCA), which initiated action to de-register over 2 lakh companies that had not filed returns+ , is planning to invoke provisions of section 447 of the new Companies Act which relates to fraud, citing public interest, sources told TOI. The law provides for imprisonment of three to 10 years in case of fraud and can come with a penalty that is equal to the value of the offence. A “fraud” has been defined to include acts of omission and concealment.

Sources said that the registrar of companies, which had de-registered the firms, will look into the issue and also examine the source of funds through a thorough investigation of the companies. The move follows a ban on directors, some of whom are also on the board of top listed companies, as well as a move to freeze the bank accounts of these entities.

The revenue department and MCA have been working jointly to act against “shell companies” many of which have little business but are used to launder funds by routing money through a web of companies. The government suspects that many such companies were used to deposit cash during demonetisation, which was later withdrawn.
Preliminary data accessed by the tax department had revealed Rs 4,600 crore routed through bank accounts of less than 6,000 companies. Some of the companies had over 900 bank accounts. “While it is not illegal to have several bank accounts, we need to establish that the funds were beyond the known sources of income,” a tax officer said.
The action by MCA has so far covered companies that did not file the required results during the last three years with officials suggesting that if the exercise is expanded to previous years, more companies could be de-registered. They, however, pointed out that there was a spurt in the number of companies registered during the so-called boom years for the Indian economy.
Print Friendly, PDF & Email

Leave a Reply

Your email address will not be published. Required fields are marked *