Shell Companies- Govt prepares List of 16,794 companies

After Prime Minister Narendra Modi’s decision to demonetize ₹500 and ₹1000 rupee notes on 8th November 2016, various authorities noticed a surge in shell companies depositing cash in banks, possibly in an attempt to hide the real owner of the wealth. In response, in July 2017, the authorities ordered nearly 2 lakh shell companies to be shut down while SEBI imposed trading restrictions on 162 listed entities as shell companies and suspended trading in 331 Companies. A high-level task force found that hundreds of shell companies were registered in a few buildings in Kolkata. Many of those were found to be locked, with their padlocks coated in dust and many others which had office space the size of cubicles.

As per Invesopedia.com A shell corporation is a company without active business operations or significant assets. These types of companies are not all necessarily illegal, but they are sometimes used illegitimately, such as to disguise business ownership from law enforcement or the public.

Legitimate reasons for a shell companies include such things as a startup using the business entity as a vehicle to raise, funds, conduct a hostile takeover or to go public.

The US Securities Act defines shell companies as –

“Securities Act Rule 405 and Exchange Act Rule 12b-2 define a Shell Company as a company, other than an asset-backed issuer, with no or nominal operations; and either:

• no or nominal assets
• assets consisting of cash and cash equivalents; or
• assets consisting of any amount of cash and cash equivalents and nominal other assets.”

In India, Shell companies haven’t been defined in law  regulations could be framed to define shell companies by using operational parameters such as standalone revenues, assets, employee strength, or other measurable /operational metrics.

The government has prepared a list of 16,794 shell companies with inputs from all investigative agencies. The list is mostly comprised of real estate, finance and entertainment companies.