Businesses may have to geotag office premises
FRAUD CHECK Geotagging will help online return filing system spot shell firms NEW DELHI:
Businesses may soon have to geo-tag their registered office premises in the statutory filings with the Registrar of Companies (RoCs), as the government tightens regulatory systems to prevent fraud. Geo-tagging will let the online return filing system raise red flags wherever it detects that far too many companies are registered in the same premises — a trend noticed in past investigations into fraudulent companies.
“We are seriously thinking of introducing the requirement of geo-tagging companies’ registered office in statutory filings. This will help us identify instances of one building being used by hundreds of shell companies as their registered office or of companies citing vacant plots as their registered office address. It will serve as an early warning system for detecting mushrooming of shell companies,” minister of state for corporate affairs PP Chaudhary said in an interview.
With this move, the ministry seeks to prevent abuse of the legal structure of a company for inflating cost and disguising unaccounted wealth as loans or equity through bogus transactions. Many companies that exist only on paper with the same address were found in the past offering what is referred to as ‘accommodation entries’ or bogus transactions without commercial substance. A special investigation team led by Justice Shah, former Judge of the Supreme Court, had in 2015 highlighted the role played by such entities in money laundering.
The co-ordinates of the registered premises will act as a key input for mining data in the ministry’s IT infrastructure, called MCA21, to zero in on companies with common address, common contact numbers, common directors and sudden and unexpected changes in revenue etc that may warrant a closer look into its affairs. The idea is to seek the co-ordinates of the registered office at the time of incorporation in the case of new companies and at the time of filing annual returns in the case of existing ones.
“Over a period of time, the disclosure and transparency requirements for companies have increased. Geo-tagging will certainly help in identifying clusters of companies with the same address,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates Llp.
Chaudhary also said that the government is working on defining in the law what is commonly referred to as a shell company. After the November 2016 demonetisation of high-value currency notes, the government combed through records to identify dormant companies and those which were used to launder money. To be sure, not all dormant or defunct companies are not involved in wrong-doing. Most of them only default on the statutory requirement of filing annual returns. In some cases, companies default on filing their annual returns because there is no business activity. In a clean-up exercise, the government struck off over 2.26 lakh such defunct companies in 2017-18 from the records for not filing annual returns for two or more years. It also identified some cases that called for a probe.
Now, investigations are on into the real ownership of 68 companies that deposited ₹25 crore or more after demonetization which the authorities have found suspicious.