There is no definition of the term “Shell Company” in the Companies 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. This was stated by Union Minister of State for Corporate Affairs Shri Rao Inderjit Singh in a written reply to a question in Rajya Sabha today.

On the identification shell companies, the Minister stated that 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.

Giving more details, the Minister stated that the Government has undertaken a Special Drive for identification and strike off of Companies by invoking the provisions of section 248 (1) of the Act by which the Registrar of Companies (RoC) struck off those companies after following the due process of law from the Register of companies when RoC has reasonable cause to believe that those companies are not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455.

The Minister listed the total number of companies struck off u/s 248 State/Union Territory-wise as under:

Sate/ UT-wise	2018-19	2019-20	2020-21
Gujarat	6398	2494	257
Andaman	24	15	2
Karnataka	4171	5568	1038
UT of Chandigarh	3514	893	501
Tamil Nadu and Coimbatore	9107	3214	1322
Orissa	2907	719	78
NCT of Delhi and Haryana	30544	12653	2396
Kerala	2801	5339	977
Goa	250	311	36
Madhya Pradesh	3386	1168	111
Himachal Pradesh	481	176	201
Telangana	16364	2686	730
Rajasthan	4038	4466	507
Jammu and Kashmir	255	138	0
Jharkhand	1306	403	139
Uttar Pradesh	7589	5821	1936
West Bengal	8390	6627	5
Maharashtra (Mumbai and Pune)	47575	7824	2298
Bihar	2540	1956	185
UT of Puducherry	37	117	35
Assam, Tripura, Arunachal Pradesh, Nagaland, Mizoram, Meghalaya, Manipur, and Sikkim	372	796	88
Uttarakhand	476	79	0
Andhra Pradesh	3864	958	0
Chhattisgarh	539	347	47
Grand Total	156928	64768	12889

 

Strike-off of inactive companies under section 248 guided by red flag identification and a special drive leading to removals. Strike-off of companies for prolonged non operation has been effected by the Registrar of Companies by invoking Section 248(1) where the RoC believes a company has not carried on business for the two immediately preceding financial years and has not applied for dormant status under Section 455; a Special Drive applied this mechanism and the Ministry reported 12,889 companies struck off in 2020-21.