Three lakh more suspected shell companies to get show cause notice

The Enforcement Directorate (ED) will be roped in to probe if companies recently deregistered were involved in money laundering, official sources said in the wake of Prime Minister Narendra Modi’s statement on Saturday that over one lakh companies had been struck off at one go.

“The fate of one lakh companies has been locked with one stroke of a pen in one minute. The Registrar of Companies (RoC) has removed these one lakh companies. More will be found and even tougher action can be expected against shell companies,” Mr. Modi said in a address to chartered accountants in the national capital on Saturday.

Meanwhile, the Ministry of Corporate Affairs (MCA) is preparing to send show cause notice to over three lakh more firms for striking off their names from the ‘register of companies’, government sources told The Hindu.

Tax consultants and the government sources pointed out that while action against companies are initiated under the Companies Act, the scrutiny was stepped up in the wake of demonetisation and as part of the action against black money.

Sources said the ED will soon be called in to look at the companies that have been struck off the register. The ED is empowered “to take actions of attachment and confiscation of property if the same is determined to be proceeds of crime derived from a Scheduled Offence under the Prevention of Money Laundering Act (PMLA).”

The ED can also launch prosecution against those involved in money laundering.

These measures followed an operation launched to expedite action against companies that failed to start business within one year of incorporation or were not carrying on any business for two immediately preceding financial years or not applied for dormant status.

It gained momentum in April, when the RoC in several States/Union Territories issued show cause notice to over two lakh companies for striking off their names. The firms were given 30 days to submit their response. If the reply was found unsatisfactory, the corporate entity’s name was removed.

Also Read One lakh suspect firms deregistered

However, referring to Section 252 of the Companies Act, officials pointed out that persons aggrieved by the RoC order — notifying a company as dissolved under Section 248 of the Act — may file an appeal to the National Company Law Tribunal (NCLT) within three years from the RoC’s order. If the NCLT finds that the removal of a company’s name was unjustified, it may order its restoration in the register, the officials said.

According to the MCA, the total companies registered in the country as on May 31, 2017, are 1,659,965, of which 1,322,175 were active.

There were 3,05,386 closed companies, of which about 10,336 were liquidated/dissolved, while 2,65,096 were defunct (and hence struck off). In addition, 25,562 companies were in the process of being struck off and 123 in the process of being re-activated.

The trend of registration of companies (month-wise) showed that after a high of 10,000 in May 2016, it had gradually fallen to about 6,000 in November 2016 — the month when demonetisation was announced — and then started shooting up to touch around 11,500 in March 2017 (barring a fall in January, the new registrations had surged).

The new registrations fell in April to around 9,000, but then rose to 9,673 in May.