Over 100,000 shell firm directors disqualified for five years

In a fresh crackdown, the Ministry of Corporate Affairs has disqualified 106,578 directors for their association with shell firms. This comes just a few days after bank accounts of around 200,000 shell companies were frozen. 

The directors identified for disqualification would not only be debarred from their respective boards but also from other companies for five years. 

It is learnt that more directors are under the scanner. Last Wednesday, the ministry had said a decision had been taken to blacklist 300,000 directors of shell firms.

The ministry has said action would also be taken against some members of the Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI), and other associations involved with these shell companies. These institutions have been told that they are being monitored. 

A source at ICAI told Business Standard that the association has identified 26 CAs and is gathering more evidence against them.

However, ICSI sources said there was no company secretary involved with shell companies, though some of them were linked to financial defaults. 

"The ministry has identified 1,06,578 directors for disqualification under Section 164(2)(a) of the Companies Act, 2013 as on September 12, 2017," the government said in a statement. Under the section, these directors cannot join the board of any other company for the next five years.

The ministry is further analyzing the data available with the Registrar of Companies to identify directors and the significant beneficial interests related to these entities. 

"The money laundering activities performed under the aegis of these companies are also under the scanner," a statement from the government said. 

Profiles of directors such as their background, antecedents and their role in the functioning of these shell companies are being compiled in collaboration with the enforcement agencies. Serious Fraud Investigation Office (SFIO), ROCs, Department of Financial Services, Indian Banks' Association and other departments are involved in the crackdown against defaulting companies.

Minister of State for Company Affairs PP Chaudhary said, "all the agencies concerned are handling this issue on priority. The fight against black money shall be incomplete without breaking the network of shell companies. Possibility of using the shell companies for laundering black money cannot be undermined."

A statement from the government said this exercise would go a long way in creating an atmosphere of confidence and faith in the system, paving the way for ease of doing business in India. 

"The interest of stakeholders would be protected and the image of the country in the global business arena would substantially improve,” the government said. 

Recently, the MCA also issued notices to companies that are supposed to function as NBFCs but have not registered with the Reserve Bank of India. 

Prior to action against defaulting companies, there were about 1.3 million companies registered with RoCs. However, after the closure of around 210,000 companies, about 1.1 million are active.