Govt. Set To Ban 1 Lakh Directors Of Shell Companies!
Section 164 is all set to disqualify and ban directors
Despite backlash faced over their demonetization plans, and implementation of GST, Govt. of India is in no mood to let go of their mission to crush the black money market.
In their latest salvo, Finance Ministry is all set to disqualify and ban over 1 lakh company directors of shell companies.
This comes barely a week after 2.09 lakh companies were struck off the Registrar of Companies under Section 248 (5) of the Act.
However, this new attack on shell companies and their directors is being undertaken under Section 164(2)(a), which is even more lethal and brutal.
Minister of State for Corporate Affairs P P Chaudhary said, “The fight against black money shall be incomplete without breaking the network of shell companies.”
1 Lakh Directors To Be Banned By Govt. of India
A shell company is a “non-trading company used as a vehicle for various financial maneuvers or kept dormant for future use in some other capacity.” They are increasingly being used by unethical businesses to rotate money, thereby saving on taxes, and thereby accumulating black money.
In their recent crackdown on black money, Finance Ministry has identified 1.06 lakh directors of such shell companies, and move has been taken to debar them for at least 5 years.
In an official statement, Ministry of Finance has confirmed that they have “identified 1,06,578 directors for disqualification under Section 164(2)(a) of the Companies Act, 2013 as on September 12, 2017,”
Shell Companies: Why Is Section 164 Lethal?
Under Section 164 of Companies Act 2013, Govt. can disqualify and ban a Director for 5 years, if that director has not filed any financial statements for a period of three years or more. Besides, if the Director is found to be mentally unwell, or convicted of any crime, then also this disqualification action can be imposed.
Using this strict provision of Companies Act for curbing black money is indeed a huge step.
The Minister further said, “The disqualification under Section 164 of the Act is by operation of law. We are identifying the defaulting directors of these shell companies. My officers have assured me that by the end of this month, we would be ready with the relevant details of all defaulting directors of these shell companies,”
Signaling their tough stand on such directors who had intentionally formed such shell companies, the notification from the Ministry added: “Profiles of directors such as their background, antecedents and their role in the operations/functioning of these companies are also being compiled in collaboration with the enforcement agencies,”
Not only Directors, but professionals, chartered accountants, company secretaries and cost accountants associated with those shell companies are also being interrogated. Such people “involved in illegal activities have been identified in certain cases and the action by professional institutes such as ICAI, ICSI and ICoAI is also being monitored”.
It seems Govt. has no intentions of allowing such culprits to go free, as Serious Fraud Investigation Office (SFIO), ROCs, Department of Financial Services, Indian Banks Association have roped in to identify and disqualify Directors of shell companies.