Based on non-filing of Financial Statements (FS) consecutively for two years or more, “Shell Companies” were identified and after following due process of law as provided under Section 248 of the Act, 2013 read with the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016, there are 3,82,875 number of Companies were struck off during the last three years up to financial year ended 2020. Further, no companies have been struck off during 2020-21.

This was stated by Shri Anurag Singh Thakur, Union Minister of State for Finance & Corporate Affairs, in a written reply to a question in Rajya Sabha today.

The Minister further stated that there is no definition of the term “Shell Company” in the Companies Act, 2013 (the Act). It normally refers to a company without active business operation or significant assets, which in some cases are used for illegal purpose such as tax evasion, money laundering, obscuring ownership, benami properties etc. The Special Task Force set up by the Government to look into the issue of “Shell Companies” has inter-alia recommended the use of certain red flag indicators as alerts for identification of Shell Companies. The Government has undertaken a Special Drive for identification and strike off such Shell Companies.

Giving more details, the Minister stated that Securities Exchange Board of India (SEBI) has informed that they had received a list of 331 shell companies from MCA along with a letter of Serious Fraud & Investigation Office (SFIO) which contained the data base of shell companies along with their inputs, for initiating necessary action. On the basis of said reference of MCA, SEBI advised Stock Exchanges to take the following pre-emptive interim measures vide letter dated August 07, 2017:

a) To place identified listed companies under Surveillance Measures.

b) Restrictions on share transfer by promoters and directors of such identified companies and

c) Verifying the credentials /fundamentals of such companies.

Accordingly, all the nationwide recognised stock exchanges (NSE, BSE and MSEI), vide notice dated August 7, 2017, addressed to all its market participants, initiated action as per instructions of the SEBI. Out of 331suspected shell companies, 221 companies were listed on these nationwide stock exchanges. 

MCA has ordered investigation against 68 such companies, the Minister stated.

Shell company identification triggers regulatory strike-off and exchange surveillance measures to curb misuse and illicit financial activity. Persistent non filing of financial statements prompted identification of entities described as shell companies, leading to large scale strike offs through the Companies Act removal framework. A Special Drive using red flag indicators has been used to detect and remove such companies, while securities regulator referrals prompted exchange surveillance, restrictions on promoter and director share transfers, verification of fundamentals, and investigations by company law investigators.