To define shell companies, government may amend Companies Act
The government is looking at providing a challenge-proof definition of shell companies by amending the Companies Act. This definition will help agencies and regulators to distinguish between those guilty of fraud and those who are irregular with their filings
The government is looking at providing a challenge-proof definition of shell companies by amending the Companies Act. This definition will help agencies and regulators to distinguish between those guilty of fraud and those who are irregular with their filings. Sources close to the development informed Zee Business's Alok Priyadarshi that the ministry of corporate affairs (MCA) may introduce an amendment to the Companies Act to provide a definition of shell companies functioning in India. The amendment will be introduced during the upcoming monsoon session that runs between July and September.
The multi-agency task force comprising officials from the Enforcement Directorate (ED), Financial Intelligence Unit (FIU), Directorate of Revenue Intelligence (DRI), the Income Tax Department, Serious Fraud Investigation Office (SFIO) and the capital markets regulator Securities and Exchange Board of India (Sebi ) have submitted its preliminary suggestions to the ministry of corporate affairs. Through the amendment, the government will seek to close all loopholes of shell companies on global parameters.
The sources added that Indian standards and Organisation for Economic Co-operation and Development's (OECD) global policy will be taken into consideration for deciding the Standard operating procedure (SoP). The regulators are keen on a definition that is more suited in the Indian context. The new SoP will help the investigation agencies to clearly know the difference between the genuine and guilty companies. Shell companies with a dormant account, zero turnovers, no physical presence at the given address and those who don't file their returns will be a part of SoP.
One key issue hampering the investigations and prosecution has been lack of a proper and uniform definition for 'shell companies' -- a term generally used for companies that are set up for carrying out financial manoeuvers only or are kept dormant for some future use. According to the sources, the ministry of corporate affairs will submit its report to the finance minister Piyush Goyal by the end of May 2018.
OECD's definition of Shell company
OECD in its definition has defined a shell company as one that is formally registered, incorporated, or otherwise legally organised in an economy but which does not conduct any operations in that economy other than in a pass-through capacity. Shell comapnies tend to be conduits or holding companies and are generally included in the description of Special Purpose Entities.