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Fight Against Money Laundering Has Become Minacious For Directors

Nimisha Gupta 
on 27 September 2017

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In the gracious spree to eradicate the menace of black money from the various strata of the economy, the government has unleashed a warfare with companies and directors of shell companies.

Synopsis: The Point In Contention

The Ministry of Corporate affairs along with various departments like Serious Fraud Investigation Office, Indian Banks Association, Registrar of Companies, Department of Financial Services have taken a front foot in this mission. It is claimed that:

1,06,578 directors are on the verge of getting disqualified for their affiliations with shell companies.

  • Such directors are declared disqualified for not filing financial statements or annual returns for any three financial years continuously, as specified in Section 164(2)(a) of the Companies Act, 2013.
  • Such failure has put a bar on directors to get re-appointed in the same company or any other company for the next five years.

Around 2,09,032 dormant companies are slashed off the record maintained by the registry.

  • Ministry of Corporate affairs has cancelled the registration of all the defaulting companies.
  • The ministry of Finance has ceased the bank accounts of such companies.

At present, there are exactly 1209280 companies with an active status registered with Ministry of Corporate Affairs.

Annual Compliance: A must

Every company registered with the Registrar has to report to the concerned statutory authorities regarding various compliance regularly.

Such annual initiations are imperative for companies post their incorporation.

Companies which fail to comply with such mandatory requirements are not only subject to penalty rather are suspected to be shell companies.

Breeding money laundering units: Shell Companies

Companies which are incorporated with the intention of non-trading, are referred as Shell companies. Such companies happen to be the point of contact for money laundering.

Shell companies can be any of following:

  • Private Company having nominal expenses and low income.
  • Public Company with nominal paid-up capital and a huge surplus of cash in hand.

A common misconception is that any company which fails to comply with the annual filings is a shell company.

Few shell companies are initiated for not transacting any business, maybe in anticipation of a future project or to claim certain Intellectual Property rights.

Government’s Scrutiny Drive

Ministry Of Corporate affairs is constantly investing the database of these companies with the registrar of Companies in finding the beneficial interest and the real beneficiaries.

An exhaustive report of the directors involved has been compiled which includes the following:

  • Profiles: with background checks
  • Their role in the operations
  • Their antecedents
  • Money laundering activities performed
  • Professionals such as CA/CS/Cost Accountants associated with such companies.

Money Laundering: a menace

It is an illegal act to conceal the proceeds of a monetary transaction and fabricate the origin of such proceeds, to prove it legitimate in the eyes of the law.

Trading in multiple shell companies is yet another sophisticated way of laundering the money around. In the fight against the black money, it is inevitable for the government to break the web of such companies.

Post demonetization spree the government has taken many actions. Back in April 2017 around 9,00,000/-, companies were on the verge of getting de-registered for the same.

The author is affiliated with QuickCompany which deals in Company Registration, Trademark registration, Trademark Public Search, Service Tax Registration, MSME, Import -export Code and Other Legal Activities.


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Category Corporate Law
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Nimisha Gupta 

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