New Delhi: Continuing the drive to clean up India’s company registry, the government has identified 2.25 lakh shell companies for closure so far this year for defaulting on filing annual returns.
Minister of state for corporate affairs PP Chaudhary informed Lok Sabha on Friday that these firms have not filed their financial statements or annual returns for the two financial years FY16 and FY17 and hence are chosen for removal from the register of companies.
The move is part of a drive to weed out entities that do no economic activity and are a burden on the system. The ministry also combs through the database of companies to see if any of the companies are used for economic offences like money laundering.
The latest drive follows a crackdown on defaulters last year when the government struck off 2.26 lakh companies and ordered investigation into 68 companies that made suspicious bank transactions during the demonetisation period at the end of 2016. The ministry is also now strengthening the know your customer (KYC) system to make sure that the identity of directors on the boards of companies are captured in the system so that the corporate structure is not abused by fly-by-night operators.
“Due procedure shall be followed by the Registrars of Companies before striking off names of companies,” said the minister in a written reply to a question.
While companies that do no economic activity or are used to merely to hold some assets like intellectual property rights tend to default on the requirement of filing financial statements and annual returns with the registrar of companies, entities that are used to commit financial crimes tend to comply with the statutory filing requirement in letter in order not to arouse suspicion. These entities are identified by looking at their transactions, the capital employed and their boards. The government is now working on a proposal to define in the law what are usually referred to as shell companies and are mostly used for wrongdoing.