Why in news?
Recently union government has initiated action against more than two lakh shell companies as part of Operation Clean Money.
What is operation clean money?
- Operation Clean Money was initiated by Income Tax Department (ITD).
- Initial phase of the operation involved-verification of large cash deposits made after demonetization.
- Second phase of the operation involves is identification of high risk persons for detailed investigations by the ITD.
What are shell companies?
- Shell companies are typically corporate entities which do not have any active business operations or significant assets in their possession.
- The government views them with suspicion as some of them could be used for money laundering, tax evasion and other illegal activities.
- Some laws helpin curbing illegal activities to target shell companies are
- Benami Transaction (Prohibition) Amendment Act 2016
- The Prevention of Money Laundering Act 2002
- The Companies Act, 2013.
How can name of these companies be removed?
- Companies can be removed from the rolls of the Ministry of Corporate Affairs by two means either by strike off by Registrar of Companies (RoC) or by voluntary strike off.
- The strike off happens in case of companies which have failed to commence business within a year of incorporation.
- Voluntary closure can be done with the approval of the board and shareholders and the firm should have nil liabilities.
What is the difference between dormant and shell companies?
- A dormant company gets its title in three ways
- If it has chosen to get a ‘dormant’ status from the RoC by way of an application.
- If it is in compliance of the requirements of Section 455 of companies act 2013.
- In case a company has not filed financial statements or annual returns for two financial years consecutively, the RoC shall issue notice and include it in the register of ‘dormant’ companies.
- But a shell company is one which is typically suspected of illegal activities.
What actions can be taken against shell companies?
- The RoC issues a show-cause notice to such companies and their directors seeking their response within 30 days.
- If the response is not satisfactory, the company’s name would be removed from the register.
- Then companies have to make an application before the National Company Law Tribunal for restoration which the NCLT will decide on a case-to-case basis.
Source: The Hindu
