Speedy action being taken against shell companies: Jaitley

The government on Friday said speedy steps are being taken against shell companies, but a balance needed to be maintained between ease of doing business and ensuring that wrongdoing is stamped out.

Finance minister Arun Jaitley told the Lok Sabha that there is no definition for shell companies under the Companies Act but such entities are used for roundtripping of money.

The real owners behind such entities need to be identified and steps are being taken under the benami and income tax laws, said Jaitley, who’s also the corporate affairs minister, during Question Hour in Parliament.

Replying to supplementaries, Jaitley mentioned the recent Securities and Exchange Board of India (Sebi) action against suspected shell companies that had rocked the bourses, saying “Baazaar mein thoda uthal puthal hua (there was some turmoil in the markets).”

On August 7, Sebi asked the stock exchanges to take action against 331 suspected shell companies that had been referred to it by the corporate affairs ministry.

He noted that a company can be registered in two days. Technology makes the process easier, he added.

Responding to a supplementary question by Congress lawmaker Shashi Tharoor, the minister said there was a distinction between dormant and shell companies. There is potential for dormant companies being misused as shell companies but there is an additional instrument to deal with such entities, Jaitley said.

If business is being done under a fake name, then the benami law would be applicable, he said.

On whether there was a need to amend the Companies Act and strengthen the inspection and oversight mechanisms to pre vent formation of shell companies, Jaitley said, “There is no such proposal under consideration.”

He also emphasised that the existing provisions of the Act were sufficient to ensure that individuals forming the companies are identifiable and traceable for the purpose of initiating penal action.

To a question on whether many shell companies had been set up in the recent past to launder black money and hold benami property or companies, the minister replied in the negative.

“The term ‘shell company’ is not defined under the Companies Act, 2013. The Act requires that a company may be set up for any lawful purpose only,” he said. “Subsequent to incorporation, if a company is found to be formed for fraudulent or unlawful purpose, it is liable for penal action, including for winding up under Section 271of the Act,” Jaitley said in a written reply.

The questions were asked by BJP member and former home secretary R K Singh.