Govt freezes bank accounts of more than 2L firms in crackdown on shell companies - Hindustan Times

Govt freezes bank accounts of more than 2L firms in crackdown on shell companies

Livemint, New Delhi | BySahib Sharma and Gireesh Chandra Prasad, New Delhi
Sep 06, 2017 12:02 AM IST

The Department of Financial Services has advised banks that they should take immediate steps to put restrictions on bank accounts of such struck-off companies.

The finance ministry on Tuesday restricted directors of around 200,000 dormant companies struck off official records from accessing their firms’ bank accounts.

(Representative image)
(Representative image)

The move is a precautionary measure aimed at preventing misuse of the bank accounts, said a government official who spoke on condition of anonymity.

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A large section of these companies may have failed to comply with the requirement of submitting annual reports and other filings as their businesses had failed to take off. Some of them have come under the scanner of the income-tax department for suspected money laundering and stock price manipulation.

The companies have been removed from the records of the Registrar of Companies (RoC) under section 248 of the Companies Act.

Reasons include not commencing operations within a year of incorporation or not carrying out any business in the preceding two financial years.

Directors of these firms will be able to access the bank accounts only after they get legally restored by an order of the National Company Law Tribunal, the finance ministry said in a statement.

Action will be taken against companies detected to have been used for money laundering and tax evasion.

“The department of financial services has, through the Indian Banks Association (IBA), advised all banks that they should take immediate steps to put restrictions on bank accounts of such struck-off companies,” said the statement.

The department also cautioned banks in dealing with companies that are listed as active in RoC records, but have not been filing annual records disclosing any charge on their assets for the benefit of stakeholders, said the ministry statement.

“This is a house cleaning exercise,” said Ved Jain, former president of accounting rule-maker Institute of Chartered Accountants of India.

A senior banker explained that defunct companies--those that remain only on paper and do not do any business--can also be used to launder money. The banker explained that transactions that are way beyond the capital of a company are an indication of possible wrongdoing.

Kamlesh Vikamsey, another former president of ICAI, said most companies removed from records under section 248 of the Companies Act are defunct ones with no business activity and very few of them could be shell companies.

Often, entrepreneurs open companies to hold certain assets such as trademarks, but because of business reasons, they fail to start operations.

Prime Minister Narendra Modi’s administration is cracking down on firms that are engaged in fraud as well as those that are dormant and strain the regulatory system.

Mint reported on 27 July that India launched its biggest fight yet against the use of shell companies to evade tax or to launder money by targeting around 30,000 companies and their directors in 2016-17, compared to 1,150 investigations launched against such firms in the previous three years.

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