ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Exposing Shell Companies

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On 12 September 2017, the Ministry of Corporate Affairs (MCA) publicly disclosed a list of 1,06,578 disqualified directors with associations to shell or on-paper companies. The individuals named in the list have been barred from further appointment as directors of other companies for a period of five years, that is, until 2021. It is estimated that the final count of those disqualified may go up to 4.5 lakh. The MCA circular cites the reason for disqualification as companies having failed to file their annual financial returns, in violation of Section 164(2)(a) of the Companies Act, 2013. Additionally, in August 2017 the Securities and Exchange Board of India (SEBI) targeted 331 listed entities suspected of being shell companies and in violation of listing agreements, by limiting their trading activities.

Shell or on-paper companies are legal entities with no real economic operations, typically used for the purposes of tax dodging, or to launder funds. While owning shell companies is not illegal, these companies offer a secure blanket to those who benefit from its activities, making it incredibly difficult to identify the true beneficiaries. In the wake of scandals like the Panama Papers, Bahamas Leaks, Azerbaijani Laundromat, and now the Paradise Papers, the urgency and importance of lifting the veil of secrecy that such corporate vehicles offer, is being recognised. In this scenario, the identification of those with significant influence or control over such entities is crucial.

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Published On : 20th Jan, 2024

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