~17kcrore transactions under lens after note ban
Directors of defunct firms to be held accountable
NEWDELHI: After last November’s demonetisation, over ₹17000 crore was deposited into 58,000 bank accounts and subsequently withdrawn, the corporate affairs ministry said on Sunday, announcing what is perhaps the most significant instance yet of possible tax-fraud or, worse still, money laundering after the exercise to clamp down on black money by invalidating all old high-value currency notes.
Regulatory agencies unearthed these suspicious transactions on the back of intelligence gathering and data analysis after demonetisation, the ministry said.
“In one case, a company with a negative balance as on 8 November 2016 (the day note ban was announced), deposited and withdrew ₹2,484 crore post demonetisation,” the ministry added in its statement.
The ministry said that the number of shell companies struck off from official records for either being a drag on the regulatory system or for financial irregularities after last November’s demonetisation has gone up to 2.24 lakh as on 5 November, up from 2.09 lakh reported in the first week of October. The ministry doesn’t define shell companies, most of which punctiliously comply with statutory requirements so as to not attract attention. Usually, shell companies are used to launder money, evade tax or engage in illegal activities.
Many of the 35,000 shell companies identified in a government probe, along with the 58,000 bank accounts, have been struck off from the registry, but their promoters and executives will still be held responsible.
Earlier, the government had disallowed directors of dissolved companies from accessing the accounts of these companies.
Experts said that defunct and shell companies that have no economic activity clog the regulatory system at best and commit financial crimes at worst.
“Weeding out such entities will help in cleaning up the system and ease the pressure on regulators. Statutory compliance by companies such as filing annual returns is essential for transparency in the corporate sector,” said Pavan Kumar Vijay, founder of advisory firm Corporate Professionals.
Statutory filings by a potential business partner is a source of information for companies to do due diligence before entering into transactions.
Defunct companies, termed the dead wood of the system by some, are those that have not met their statutory requirements for a variety of reasons, the most common being that they have gone under.
Recently, the corporate affairs ministry struck off 162,000 defunct companies from its registry. In addition, around 300,000 directors have been disqualified because the companies on whose boards they sit, did not comply with the statutory requirement of filing annual returns.
Abuse of corporate structure has been identified by various panels that have looked into the menace of unaccounted wealth in the economy as a ‘standard operating procedure’ by tax evaders. Shell companies are also used for fictitious transactions aimed at inflating expenses by larger companies as well as by promoters of such to divert funds to privately held entities.