Nation
3 lakh shell companies may soon vanish from Companies’ Register
The discussion on the existence of non-operative companies or shell companies is making the rounds of corporates, with special emphasis on government departments on curing the malady. 
 
With the widespread epidemic of non-operative and shell companies in the Indian corporate environment, the Registrar of Companies (RoC) has come up with a well thought out cure. We are waiting to see what will be the next step of the RoC against the response being submitted by the companies, which should more or less be over by the end of this month as the companies have been given just 15 days to respond to the show-cause notices (SCNs). In effect, the RoC has turned the tables in the game.  Better late than never.
 
The Finance Minister had clearly indicated that action will be initiated against companies which have been created for the purpose of circulating black money and are not carrying on any business. It now seems that RoCs all over the country have given the non-operative companies (NOC) an ultimatum to either make the compliances and start doing the business activity for which they were formed, or else pack up. 
 
The RoCs have published a list of NOCs under their jurisdiction which have failed to comply with the provisions of the Act. These NOCs have to either submit their reasons for such failure or get struck off from the Companies Register maintained by the RoCs.  
 
Provisions of law
 
248. (1) Where the Registrar has reasonable cause to believe that—
(a) a company has failed to commence its business within one year of its incorporation (Inserted by Companies (Amendment) Act,2015 and is effective from 29th May, 2015);
(b) [Omitted] (Omitted by Companies (Amendment) Act,2015 and is effective from 29th May, 2015). 
(c) a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455,
 
he shall send a notice to the company and all the directors of the company, of his intention to remove the name of the company from the register of companies and requesting them to send their representations along with copies of the relevant documents, if any, within a period of thirty days from the date of the notice. 
 
(6) The Registrar, before passing an order under sub-section (5), shall satisfy himself that sufficient provision has been made for the realisation of all amount due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time and, if necessary, obtain necessary undertakings from the managing director, director or other persons in charge of the management of the company:
 
Provided that notwithstanding the undertakings referred to in this sub-section, the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies.
 
(7) The liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member of the company dissolved under sub-section (5), shall continue and may be enforced as if the company had not been dissolved.
 
Bold step taken by the RoCs
 
Pursuant to the power given under this section, the RoCs have taken the bold step of sending out notices to such companies. Overall the number is over 2.54 lakh companies as per the list available. The list of ROCs of Kanpur, Uttarakhand and Kashmir are not available on the website. From the data provided, it appears that Mumbai has the highest number of NOCs, at 71,530, followed by Delhi (53,312) and Hyderabad (40,200). Bangalore, Chennai, Kolkata and Chandigarh also contribute to a massive number of NOCs, with 15-20,000 each. 
 
Of the total of over nine lakh of companies registered in India, around 30% are NOCs. The action initiated will drastically bring down the number of companies registered in India, but will however raise concerns over the sudden action of the RoCs. While the action, brought in so late, is still commendable, the moot question is why were these companies allowed to be kept in Register of Companies for so long? 
 
With the issue of the show-cause notices, companies are rushing to professionals to seek advice. If the companies accept their default and agree to being struck off the register, the directors shall be held liable for the non-compliances made so far. On the other hand, if someone wants to revive the company, the costs will he be huge, with no assurance on the prospects of the company.
 
Fate of creditors and stakeholders
 
What will be the fate of the creditors with this move by the government? What will be the consequences for the NOCs if their names are removed by the ROC from its records? 
However, if the companies are struck off what happens to the dues outstanding towards creditors, employees, labour, etc? The only way to claim the dues from the companies will be to revive the company u/s 252 (3) of the Act which reads as follows: 
 
“252 (3) If a company, or any member or creditor or workman thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal on an application made by the company, member, creditor or workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of section 248 may, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other directions and make such provisions as deemed just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off from the register of companies.”
 
This means that such aggrieved persons shall have 20 years to initiate action for recovery of their outstanding dues against the companies before the Tribunal. India is already burdened with pending litigation running into lakhs. Reviving a company in such a scenario will be a daunting task. However, the RoC, under sub-section (6) and (7) of Section 248, is entrusted with a responsibility of satisfying himself that the companies being struck off are making arrangements for realisation of the money due to them and for discharge of their liabilities. 
 
(Dheeraj Kumar Sharma works as Associate at Vinod Kothari & Company)
 

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COMMENTS

Lodha Sumatilal

2 weeks ago

But by taking such a mass scale decision the poor ill informed people may get ousted without hearing. So natural justice will not be followed

jayesh kothari

1 month ago

It is a good move as most of the companies were dormant without applying for the same and ROC staff being inactive for years with full payment of salary not done their part for so many yeas. Hope so the mission will now complete and foolproof.

My observation on ROC data of prior dormant company are now shown as a ACTIVE inspite of company not filling Retruns for over 10 years. Is it now open for filling forms for strike off ? Please throw some light if anyone has any idea !

Hemlata Mohan

6 months ago

There has to be a beginning somewhere--- this is one. Every action has some
unintended consequences- cant help that given the crooked Indian mind. But atleast this will clear the augean stables and hopefully new registrations will be more sanitized . Cynicismfor every action needs to be shaken off

Ramesh Bajaj

6 months ago

Some companies will take advantage and avoid payment to shareholders, who are not in a position to file cases and go to court.

REPLY

jayesh kothari

In Reply to Ramesh Bajaj 1 month ago

Money would be with the Bank and they can not operate unless they have taken it away before the action.....

Ramesh Bajaj

6 months ago

Some companies will take advantage and avoid payment to shareholders, who are not in a position to file cases and go to court.

REPLY

Ramesh Bajaj

In Reply to Ramesh Bajaj 6 months ago

ROC should call all concerned (I cases where complaints are pending / have been made, for a hearing face to face.

Ramesh Bajaj

In Reply to Ramesh Bajaj 6 months ago

In cases, where complaints have been made, it should be made mandatory for ROC to call even the CA and Company Secretary, along with complainant and officers of the company, including chairman and directors. There should compulsorily be a hearing face to face to arrive at a solution on basis of truth and not on basis of influence / connections.

SRINIVAS SHENOY

6 months ago

I feel that it is the right follow up action taken by the government. I hope the government succeeds in this mission to clear up the black money, with the minimum of inconvenience to the general public. It is always better late than never.

Rahul Pande

6 months ago

Be wary of such actions which are more for shadow boxing less of intent.

uttamkumar dubey

6 months ago

All such moves will aid more of blackmailing and circulation of blackmoney unless govt. resort to transparent approach .There has to be clearcut guidelines for the same.Simply blowing things in air won't do.

Simple Indian

6 months ago

Seems the RoCs staff just got a bonanza, an unofficial pay hike ! Most such shell companies operate in the unorganized sector which also employ over 80% of the workforce in India. So, such steps are just to harass entrepreneurs in the MSME sector or smaller entities who are known to fudge their books with connivance of their CAs/auditors and with the 'cooperation' of tax authorities.

Enforcement Directorate raids tax professionals, CAs in Delhi
New Delhi, The Enforcement Directorate (ED) on Thursday conducted massive searches against tax professionals and chartered accountants (CAs) here as part of its ongoing operation against shell companies, an official said.
 
The agency took the step under Prevention of Money Laundering Act to unearth the black money being channelled by the tax professionals using shell companies. 
 
Separate ED teams raided over two dozen premises of chartered accountants, company secretaries and other tax professionals in west Delhi's Karol Bagh, Model Town and Azadpur, and east Delhi's Dilshad Garden and Laxmi Nagar. 
 
"It is alleged that some tax professionals and chartered accountants channelled thousands of crores of rupees through shell companies. They also misused the banking channels in the financial fraud," the Enforcement Directorate official said.
 
The agency's motive was to find out the funds channelled by the shell firms being run by such professionals through money laundering and Hawala channels, said another official, adding that the action was part of the country-wide operation.
 
Earlier this month, the agency conducted searches at 500 shell companies suspected to be channelling black money.
 
On April 1, the agency conducted raids at 100 premises in 16 states against 300 shell companies.
 
The shell companies are non-trading firms set up with nominal paid-up capital and used as a vehicle for various financial manoeuvrings or kept dormant for future use for some other purpose.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

Bapoo Malcolm

6 months ago

Not at all surprised. Have been waiting for arbitrariness for the last three years. There is more to come. Wat & Watch. Good Luck and Jai Ho.

Any relaxation of demonetised notes exchange to be open to all: SC
New Delhi, The Supreme Court on Tuesday said that any extension of time for depositing demonetised currency notes of Rs 500 and Rs 1,000 would be available to all and not be individual-centric.
 
Hearing a batch of petitions against the government decision not to extend the deadline, a bench of Chief Justice Jagdish Singh Khehar, Justice D.Y. Chandrachud and Justice Sanjay Kishan Kaul told the petitioners that if there would be a window for exchanging the scrapped currency notes, then it would be available to all of them.
 
The court said this even as the Central government maintained that it has taken a conscious decision not to extend the deadline except in the case of NRIs and security personnel posted in far-flung areas.
 
Addressing the court, Attorney General Mukul Rohatgi said that the government has given the reasons for arriving at the decision not to extend December 30 deadline till March 31 except in some cases. 
 
However he said that if the court decides to grant a window, then it would be available to all.
 
The top court, in the last hearing of the matter on March 21, had asked the government why it did not exercise the legal option of letting people deposit the demonetised currency beyond December 30.
 
In response, the government said that it was not legally bound to extend the deadline or open a window for exchanging the defunct currency notes. The court adjourned the hearing of the matter and said that it would be taken up for hearing when court opens after its summer vacations.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

Ramesh Poapt

6 months ago

it should be allowed with strict restriction/haircut/low limit for genuine individual.

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