For Laun­der­ers, Kolkata In­deed the City of Joy

Me­trop­o­lis tops list of most cos reg­is­tered at one ad­dress, fu­elling fears of shady deals

The Economic Times - - Front Page - Ki­ran.Som­van­shi @times­

ET In­tel­li­gence Group: With the Prime Min­is­ter’s Of­fice set­ting up a task force late last week to mon­i­tor ac­tion against de­viant shell com­pa­nies af­ter the Fe­bru­ary 1 Bud­get tight­ened rules against such en­ti­ties, Kolkata may well bear the brunt of the clam­p­down. The city tops the search for most com­pa­nies reg­is­tered at the same ad­dress.

This is the lo­ca­tion that heads the list — 9/12, Lal Bazar Street, with 315 com­pa­nies. It just hap­pens to be the ad­dress of the city’s po­lice head­quar­ters as well. Reg­is­tered Com­pa­nies, an an­a­lyt­ics firm spe­cial­is­ing in cor­po­rate due dili­gence, crunched through data from the Min­istry of Cor­po­rate Af­fairs and found that 1,410 com­pa­nies are reg­is­tered in dif­fer­ent blocks of the 9/12 Lal Bazar Street area with 84 of them based in Room No. 10 in one block. The area is a war­ren of char­tered ac­coun­tants’ of­fices with most of the com­pa­nies be­ing pri­vate limi- ted ones en­gaged in whole­sale trad­ing and real es­tate.

A lit­tle over 11,281 firms are reg­is­tered at 148 ad­dresses, an av­er­age of 76 each. Seven of the top 10 most com­mon ad­dresses are in Kolkata. Apart from the one above, these are 52, We­ston Street; 5, Gorky Ter­race; 266, Dak­shin­dari Road; 91, Shake­speare Sarani, and 4/A, Palit Street.

To be sure, there is no limit on com­pa­nies that can be reg­is­tered at the same ad­dress. Con­sul­tants typ­i­cally house the reg­is­tered of­fices of com­pa­nies for which they han­dle com­pli­ances, a prac­tice com­mon in Sin­ga­pore and Mau­ri­tius as well, said Vinod Kothari, a com­pany law prac­ti­tioner based in Kolkata. A com­pany sec­re­tary firm in Sin­ga­pore will be home to the reg­is­tered of­fices of hun­dreds of com­pa­nies, typ­i­cally called ‘let­ter box com­pa­nies’.

But a cor­po­rate af­fairs min­istry of­fi­cial said many of them ex­ist only to turn black into white.

“Some of these are surely shell com­pa­nies — cre­ated for laun­der­ing of un­ac­counted cash,” the per­son said. “Some may also be in­cor­po­rated for the pur­pose of sell­ing off at a later stage to par­ties who want to ac­quire up-an­drun­ning firms rather than in­cor­po­rate new ones. The min­istry, Se­ri­ous Fraud In­ves­ti­ga­tion Of­fice and in­come-tax depart­ment are aware of these prac­tices and ac­tion is be­ing taken.”

The In­sti­tute of Char­tered Ac­coun­tants of In­dia said it’s de­ter­mined to dis­ci­pline erring mem­bers.

Any mis­con­duct that abets cor­rup­tion and money laun­der­ing will be in­ves­ti­gated and pun­ished if proven, the in­sti­tute told ET.

“Most of these com­pa­nies typ­i­cally have small paid-up cap­i­tal and high gen­eral re­serves,” said a Kolkata-based in­de­pen­dent fi­nan­cial ad­viser.

Ac­cord­ing to peo­ple with knowl­edge of the mat­ter, the sys­tem in­volves sea­soned ac­coun­tants and money mar­ket bro­kers bring­ing to­gether two sets of peo­ple — those with un­ac­counted cash and those need­ing it.

The shell com­pa­nies be­long to the lat­ter group and have big amounts as ‘cash on hand’ but ac­tu­ally hold lit­tle of it as it’s been used in ways that can’t be ac­counted for. They have mostly spent their earn­ings and fund with­drawals from banks for per­sonal use, bribes and com­mis­sions.


“Kolkata has been very no­to­ri­ous for shell com­pa­nies be­ing used for money laun­der­ing, es­pe­cially penny stocks be­ing used to cre­ate longterm cap­i­tal gains that are ex­empt from tax, a loop­hole that was plugged in this year’s Bud­get,” said Amit Ma­hesh­wari, part­ner, Ashok Ma­hesh­wary & As­so­ci­ates LLP. “Given the com­plex­ity of the trans­ac­tions and the ac­count­ing in­volved, it won’t be easy for in­di­vid­u­als to swiftly cover up the trail of black money.”

As a nat­u­ral corol­lary, email IDs are also com­mon for many com­pa­nies. For in­stance, “in­” is the cor­po­rate email ID for 213 com­pa­nies. This ad­dress, “”, is the direc­tor’s email ID at 206 com­pa­nies.

Of about 1.5 mil­lion reg­is­tered com­pa­nies, only 600,000 file annual re­turns, the PMO said. Shell com­pa­nies are char­ac­terised by nom­i­nal paidup cap­i­tal, high re­serves and sur­pluses on ac­count of re­ceipts of high share pre­mi­ums, in­vest­ment in un­listed com­pa­nies, no div­i­dend in­come, high cash in hand, pri­vate com­pa­nies as ma­jor­ity share­hold­ers, low turnover and op­er­at­ing in­come, nom­i­nal ex­penses, nom­i­nal statu­tory pay­ments and stock in trade, be­sides min­i­mum fix- ed as­sets. Among the non-Kolkata ad­dresses, a Con­naught Place ad­dress is the third most com­mon with 311 com­pa­nies. A Ju­bilee Hills Road ad­dress in Hy­der­abad is the sixth most com­mon ad­dress with 244 (largely agro) com­pa­nies reg­is­tered.


Such pro­lif­er­a­tion makes hard to trace own­er­ship.

“This could all be eas­ily tack­led through a manda­tory re­quire­ment of dec­la­ra­tion of nat­u­ral per­sons. And, of course, if a com­pany wrongly de­clares a nat­u­ral per­son, the be­nami law is there to tackle such wrong dec­la­ra­tions,” said Kothari.

“There is a global trend to find the nat­u­ral per­sons be­hind a cor­po­rate. This is the con­cept of ‘ul­ti­mate ben­e­fi­cial owner’ which is be­hind Pre­ven­tion of Money Laun­der­ing Act (PMLA) reg­u­la­tions, as well as US For­eign Ac­count Tax Com­pli­ance Act (FATCA) reg­u­la­tions... It is im­por­tant, no mat­ter what reg­u­la­tion en­sures this, to en­sure that the iden­tity of nat­u­ral per­sons be­hind a com­pany be es­tab­lished.” The PMO said harsh penal­ties will meted out to de­viant shell com­pa­nies in­clud­ing freez­ing of bank ac­counts, strik­ing off the names of dor­mant com­pa­nies and in­vo­ca­tion of Be­nami Trans­ac­tions (Pro­hi­bi­tion) Amend­ment Act, 2016.


Among the non-Kolkata ad­dresses, a Con­naught Place ad­dress is the third most com­mon with 311 com­pa­nies

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