Rs 4,000 crore fraud by shell firms found since demonetisation, says PM Modi as 2.24 lakh companies struck off, 3.09 lakh directors disqualified

With the first anniversary of demonetisation approach­ing, the government has raised the pitch to prove that its decisi­o­n to ban high-value notes has worked.

Published: 05th November 2017 07:04 PM  |   Last Updated: 06th November 2017 01:18 PM   |  A+A-

Prime Minister Narendra Modi (File | PTI)

By Express News Service

NEW DELHI: With the first anniversary of demonetisation approach­ing, the government has raised the pitch to prove that its decisi­o­n to ban high-value notes has worked and the f­ight against black money and corruption would contin­­u­e unabated.

Prime Minister Narendra Modi, speaking at a poll rally in Himachal Pradesh on Sunday, claimed that over three lakh shell companies have downed shutters as a direct result of demonetisation. Fraud to the tune of Rs 4,000 crore has been detected during a probe into 5,000 such firms, he added. And, more such cases could tumble out going forward as investigations progress in other firms.

Meanwhile, the Corporate Affairs Ministry on Sunday issued a detailed statement with numbers supporting this claim. It said cash deposits worth Rs 17,000 crore were put into the bank accounts of some 35,000 companies, which were later struck off the government records for not following rules. It added that these deposits were later withdrawn, hinting at possible laundering of dirty money.

In a major anti-black money drive by the Ministry of Corporate Affairs, nearly 2.24 lakh companies have been struck-off for remaining inactive for a period of two years or more and 3.09 lakh Directors have been disqualified who were on the Board of Companies that did not file Annual Returns for three financial years.

Preliminary Enquiry on the basis of information received from 56 banks in respect of 35,000 companies involving 58,000 accounts has revealed that an amount of over Rs. 17,000 crore was deposited and withdrawn post-demonetization. 

The ministry’s note narrates one particular incident, in which a company had a negative opening balance on Nov 8, 2016 — the day demonetisation was announced — but deposited, and withdrew, as much as Rs 2,484 crore post the note ban.

In the initial days of demonetisation, the government had put restrictions on the amount of money that could be deposited and withdrawn through bank accounts. To surmount this, firms with unaccounted money tried many tricks, including opening multiple bank accounts. Subsequent probes detected many companies operating as many as 100 bank accounts. In one curious case, a company was found to have a whopping 2,134 accounts to deposit and withdraw cash.“With respect to deregistered companies, state governments have been advised to disallow registration of properties of such entities,” the Corporate Affairs Ministry said.

The information with respect to such companies have been shared with enforcement authorities, including Central Board of Direct Taxes(CBDT), Financial Intelligence Unit (FIU), Department of Financial Services (DFS) and Reserve Bank of India (RBI) for further necessary action. Companies have also been identified for inquiry/inspection/investigation under the Companies Act, 2013 and necessary action is underway, the Government said.

The Government has also undertaken a major exercise to strengthen the regulatory mechanisms including provision for penalising the erring professionals.

“With a view to checking the problem of Dummy Directors, action is underway to seed DIN with PAN and Aadhaar at the stage of DIN application through biometric matching for new applications. The same may be extended to legacy data in due course,” the Government said in a release.

With a view to strengthen regulatory mechanism, a separate initiative is underway to develop a State-of-the-Art software application to put in place an 'Early Warning System' (EWS), which will be housed in Serious Fraud Investigation Office (SFIO).

Following the action of striking-off defaulting companies, restrictions have been imposed on operation of their bank accounts.

Apart from the restrictions on bank accounts, action has also been taken to restrict sale and transfer of moveable and immoveable properties of struck-off companies until they are restored. The State Governments have been advised to take necessary action in this regard by disallowing registration of such transactions, the statement said.

The Prime Minister's Office has constituted a Special Task Force (STF) under the Joint Chairmanship of Revenue Secretary and Secretary, Corporate Affairs, to oversee the drive against such defaulting companies with the help of various enforcement agencies. The Special Task Force has so far met five  times and action has been initiated against several defaulting companies, which is expected to help in the drive against black money.

Preliminary enquiry has revealed that over 3,000 disqualified Directors were Directors in more than 20 companies each, which is beyond the limit prescribed under the law.

“In the light of the evidence relating to abuse of the Corporate Structure through multi-layering, not more than two layers are now permitted beyond the wholly owned subsidiary. This is in addition to the existing restriction which prohibits a company to make investment through more than two layers of investment companies,” the release further said.

In order to address the criminality angle, the Director, Additional Director or Assistant Director of SFIO has been recently authorized to arrest any person believed to be guilty of any fraud punishable under the Act. Under Section 447 of the Act, which defines fraud, stringent punishment including imprisonment up to 10 years is stipulated. Further, reference has been made to the Ministry of Finance to include it as a Scheduled Offence under the Prevention of Money Laundering Act, according to the release.

The Government has also constituted a High Level Committee (HLC) for suggesting revamp of the disciplinary systems of Chartered Accountants, Company Secretaries and Cost Accountants. Steps are underway for setting-up National Financial Reporting Authority (NFRA), an independent body, to check Financial Statements, prescribed Accounting Standards and take disciplinary action against errant professionals.

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