The Special Investigation Team on Black Money has asked law enforcement and intelligence agencies to proactively detect “shell companies” and take penal action against those involved with such firms.
Data provided by the Corporate Affairs Ministry (MCA) showed that 345 addresses are shared by at least 20 companies. It also showed that there are 2,627 persons each holding directorships in more than 20 companies in violation of Section 165 of the Companies Act, 2013. The total number of companies involved is 77,696.
While there is no specific Act/Rule that debars companies from having the same address, there is a need for greater vigilance from agencies such as CBDT, CBEC, Enforcement Directorate and Finance Institutions Unit while examining their operations, SIT said.
In its third report, extracts of which were made public on Tuesday, the SIT has asked the ministry to take action against violations of the Companies Act.
Red flags The SIT has also asked the Serious Frauds Investigation Office (SFIO) to regularly mine the MCA-21 database for red flags. These indicators could be based on a common Director Identification Number (DIN) in multiple companies, companies with the same address, same contact numbers, use of only mobile numbers, sudden and unexpected change in turnover declared in returns, etc.
The SIT also observed that in many cases of creation of shell companies, the shareholders or directors are persons of limited financial means who intend to launder black money.
The Ministry of Corporate Affairs needed to frame rules at the earliest on the manner of holdings and on disclosing beneficial interests and beneficial ownership, the SIT has said.
Currently, the company law mandates that persons declare their “beneficial interests” in the shares of a company. However, the Rules for this are yet to be framed.