The MCA will step up its war on shell companies

The Ministry of Corporate Affairs (MCA) is planning to strengthen its crackdown on non-functional or shell companies, as it has already taken action against hundreds of thousands of such firms that are often used for illicit purposes such as money laundering.

Although the term “shell company” is not explicitly defined in the Companies Act of 2013, non-functional and non-compliant companies are often referred to as shell firms. Previously, the government undertook a special drive to identify and strike off companies that had failed to file financial statements or annual returns for consecutive years.Over the past three years, a staggering 127,952 companies have been struck off the official records, according to Minister of State for Corporate Affairs Rao Inderjit Singh. People familiar with the matter have revealed that the Registrar of Companies (RoC) will increase the physical verification of non-compliant firms. Under Section 12, a company is required to have a registered office within 30 days of its incorporation and maintain it at all times for effective communication and notice acknowledgment.

The latest initiative will complement existing drives conducted by tax authorities and the Enforcement Directorate against shell companies. The newly developed database on the MCA21 portal, used for filings under the Companies Act and the LLP Act, will prove useful for future actions against such firms.