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Shell companies: Jail term for directors siphoning-off funds

K. R. Srivats New Delhi | Updated on January 10, 2018

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The Centre on Wednesday decided to hand down jail term for those directors of shell companies who are found to be unauthorisedly siphoning-off money from the bank accounts of de-registered or “struck off” companies.

The imprisonment punishment would be not less than six months and extendible to 10 years. If it is found that the fraud involves public interest, the punishment shall not be less than 3 years and fine may also be imposed which would be three times the amount involved, according to an official release.

This decision was taken at a review meeting chaired by the Minister of State for Corporate Affairs, P.P. Chaudhary here on Wednesday.

At the review meeting, it was also decided that the Directors of such shell companies which have not filed returns for three or more years, will be disqualified from being appointed in any other company as Director or from being reappointed as Director in any of the companies where they had been Directors, thereby compelling them to vacate office. It is expected that as a result of this exercise, at least two to three lakh of such disqualified Directors would get debarred.

It may be recalled that the Centre has already deregistered 2.09 lakh companies for undertaking dubious transactions or being dormant companies.

On September 5, the Department of Financial Services (DFS) directed all the banks to restrict the Directors (ex-) or their authorized signatories from operating the bank accounts of such companies so that they cannot siphon off money from the accounts of these “struck off” companies.

However, even prior to such action, if they had siphoned off any money, strict action would still be taken against them, the release added.

Apart from the action restricting the operation of bank accounts of these companies and consequential effect on the Directors, all efforts are also being made to identify the actual beneficiaries and persons behind such Shell Companies. Profiles of Directors such as their background, antecedents and their role in the operations/functioning of these companies are being compiled in collaboration with enforcement agencies.

Identification of more Shell Companies is also in progress. The professionals, chartered accountants/ company secretaries/ cost accountants associated with such Shell Companies and involved in illegal activities have been identified in certain cases and the action by professional institutes such as ICAI, ICSI and ICAI are being monitored, the release said.

Srivats.kr@thehindu.co.in

Published on September 06, 2017

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