How did Indian Government Zeroed on only 6000 companies as Shell

Shell Companies is a Buzz word in the Indian compliance professionals. There is significant activity in the Indian Corporate world. The Revenue authorities have followed an interesting strategy to zero down on the shell corporations. It is interesting to check the chronology of the events.

Chronology of Events

  1. 07.08.2017 – In an interesting development Securities Exchange Board of India restricted the trading in 331 Listed Companies. Only 48 out of these 331 were listed on National Stock Exchange. The complete list was put on the website of BSE
  2. 18.08.2017 – Leading publication publishes list of 16000 plus companies 
  3. 06.09.2017 – The names of more than 209 thousand firms have been struck off under Section 248 of the Companies Act. This act provides that company registry may take action against the company if a
    • company has failed to commence its business within one year of its incorporation or
    • it has not carried out any business for two financial years or
    • has failed to file its financial statements for three years
  4. 12.09.2017 – The government of India identifies 1,06,578 directors for disqualification under Section 164(2)(a) of the Companies Act, 2013 as on September 12, 2017. This section restricts the directors of the firm which has not filed the Financial Statements for last 3 years.

Post disqualification of the companies and the directors, government sought the information from Banks about the bank accounts and the financial transactions to understand the role of shell companies which were involved in laundering the cash during the period of Demonetization.

Data obtained from 13 banks produced names of merely 5,800 companies out of more than 2 lakh that were struck off involving 13,140 bank accounts. In few cases there were more than 2100 accounts opened in the name of a single company.