Shell Companies in India: Actions and Statistics

The Lok Sabha discussed the issue of shell companies in India, focusing on actions taken by the Serious Fraud Investigation Office and other bodies. Although “shell company” lacks a formal definition under the Companies Act, 2013, inactive companies that have not engaged in significant business or accounting transactions over two years are considered. The Act allows the Registrar of Companies to strike off such entities for various non-compliances. Over the last five years, significant numbers of companies have been struck off across various states. Andhra Pradesh, in particular, saw a high number of 5,091 companies removed from the register, reflecting substantial action taken against inactive entities. Nationwide, the total number of companies struck off reached 233,566. The government’s measures include regular monitoring and enforcement under Sections 248 and 455 of the Companies Act, aimed at curbing the proliferation of inactive or non-compliant companies.

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS

LOK SABHA
UN-STARRED QUESTION NO. 183
ANSWERED ON Monday, July 22, 2024
31 Ashadha, 1946 (Saka)

SHELL COMPANIES IN INDIA

QUESTION

183. SHRI KRISHNA PRASAD TENNETI:

Will the Minister of CORPORATE AFFAIRS be pleased to state:

(a) whether the Government has undertaken any action, via the Serious Fraud Investigation Office and other such investigative divisions, to identify shell companies in India and if so, the details of such companies during the last five years, State-wise and especially in the State of Andhra Pradesh;

(b) if not, the reasons therefor;

(c) the details of actions, legal or otherwise, as undertaken by the Government in regard to the identification and regulation of shell companies in India;

(d) whether there has been an increase in the number of shell companies during the last five years and if so, the steps taken by the Government to address this issue; and

(e) the list of companies that have been identified as shell companies and have been struck off the roll of companies over the last five years in the State of Andhra Pradesh?

ANSWER

Minister of State in the Ministry of Corporate Affairs; Minister of State in the Ministry of Road Transport and Highways

(Shri Harsh Malhotra)

(a) to (e): There is no definition of the term “Shell Company” in the Companies Act. However, there are some companies which are inactive as per the provision of sub section (1) of Section 455 of the Companies Act, 2013 (the Act). These are companies which have not been carrying on any business or operation, or have not made any significant accounting transaction during the last two financial years, or have not filed financial statements and annual returns during the last two financial years.

Further, under Section 248 (1) of the Act read with the Companies (Removal of names of companies from the Register of Companies) Rules, 2016 (Amended Rules, 2019), Registrar of Companies (ROCs) can strike off companies for certain violations such as failure to commence business within one year of incorporation, not carrying on any business or operation for a period of two immediately preceding financial years and not making any application within such period for obtaining the status of a dormant company, not carrying on any business or operation, as revealed after the physical verification etc. From time to time action has been taken for striking off such companies.

The number of Companies identified and struck off under section 248 (1) of the Act during the last five years are shown below :

(Source: Data has been provided from MCA-21)

*******