Black money menace: Shell cos directors to face up to five-year disqualification

New Delhi: Directors of companies that have not been carrying out business for a long time are set to be disqualified from holding directorship in any registered firm for up to five years, as part of the governments intensified efforts against the black money menace.

Shell companies are dubious entities that are generally used for laundering illegal wealth.

With nearly three lakh companies already under the scanner, the government is preparing to initiate stringent steps against the erring entities, including striking off their names and taking action against directors concerned, according to sources.

Apart from serving show cause notices to companies that have been not submitting their financial statements under the Companies Act for a long time, the Corporate Affairs Ministry is in the process of preparing a database of shell firms which would further help in curbing illegal business activities.

Sources said that action would be taken against the directors of the defaulting companies including, disqualification of directors under the provisions of the Companies Act, 2013.

As per Section 164 of the Act -- which is implemented by the ministry -- a person shall not be eligible to hold directorship on various grounds including that he was a director of a company that has not filed financial statements or annual returns for continuous three financial years.

Illustration by Satwik Gade

Illustration by Satwik Gade

Already, the ministry has identified 2.96 lakh companies which have not submitted their financial statements for a continuous period of two or more financial years. Prima facie, these entities have been found to not be conducting any business activities.

By way of show cause notices to various companies, the ministry has sought to know why their names should not be struck off and strict action would follow in case the responses are not satisfactory.

After completing the due process, regulatory action would start from this month onwards, sources had said.

The Registrars of Companies (RoCs) in various states and union territories have issued notices to more than two lakh firms under the Companies Act, 2013, according to information available with the ministry.

These notices have been issued under Section 248 of the Act. This section pertains to striking off names of companies on certain grounds.

RoC can seek explanation from a company if the latter has not commenced business within one year of getting incorporated under the Act.

Notice is also issued if a particular company has not been carrying out business for at least two continuous financial years and has not applied for dormant status.

There are nearly 16 lakh registered companies in the country.

Updated Date: Jun 05, 2017 10:17 AM

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