Govt panel lists parameters that define a shell company; Centre urges whistle-blowers to report suspicious activity

A government panel has come up with a definition of a shell company based on suggestions from the ED, SEBI, the FIU and the CBDT.

FP Staff May 01, 2018 19:52:10 IST
Govt panel lists parameters that define a shell company; Centre urges whistle-blowers to report suspicious activity

The government could reportedly zero-in on 18 parameters to arrive at a definition for a so-called ‘shell company', a move that will help the Centre determine if a firm was floated to launder money.

According to the Business Standard, a government panel, set up in July 2017, has come up with a definition foe a shell company based on suggestions received from the Enforcement Directorate (ED), the Securities and Exchange Board of India (SEBI), the Financial Intelligence Unit (FIU), and the Central Board of Direct Taxes (CBDT).

According to the new parameters, any company that transfers large sums to a related party, makes disproportionate investments in shares of other companies, or one with dubious directors, could be termed a shell entity.

Govt panel lists parameters that define a shell company Centre urges whistleblowers to report suspicious activity

Representational image. Reuters

The government is also planning to encourage whistle-blowers to report suspicious activity at companies and is working to link Aadhaar details of stakeholders with filings made under the companies law, Union Minister PP Chaudhary said on Monday.

Embarking on multi-pronged efforts to clamp down on illicit fund flows, the corporate affairs ministry has already struck-off the names of 2.26 lakh firm from official records, for not carrying out business activities for long, besides ordering probes into the affairs of many such entities.

"We would also encourage the whistle-blowers to come forward to inform the government, concerned authorities about any suspected activities, if they come to know about any such wrong things," Chaudhary told PTI in a recent interview.

The Minister of State for Corporate Affairs said the linking of Aadhaar details with company filings would help ascertain the authenticity of individuals concerned.

The ministry aims to tackle the issue of bogus identities in the filings of companies on the MCA 21 portal and the step to link Aadhaar will help deal with the "menace of shell companies, suspected to be used for laundering illicit funds," he said. Filings under the Companies Act are submitted to the ministry via the MCA 21 portal.

According to Chaudhary, the ministry has already asked individual stakeholders to obtain Aadhaar IDs at the earliest, for "integrating their details with MCA 21".

"The idea is to have a system in place which would help in identifying the stakeholders whose names come up in the filings made through MCA 21. Aadhaar number along with the filings would help ascertain the authenticity of the individuals," Chaudhary, also the Minister of State for Law and Justice, said.

Recently, there have been rising instances of corporate misdoings and quite a few cases have been referred to the Serious Fraud Investigation Office (SFIO). The SFIO is under the corporate affairs ministry.

Chaudhary said the ministry and markets regulator SEBI are working to safeguard investors' interests. "As far as educating the investors is concerned, the investors are advised to exercise due diligence before considering investing in any company," he added.

With inputs from PTI

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