Govt puts several dormant entities out of business

The ministry of corporate affairs (MCA) is striking off entities which have not commenced business activities even six months after their incorporation, in a nationwide move to tackle money laundering through shell and dormant companies, people in the know told ET.

More than 40,000 companies have been identified and are being deregistered, the people said. Of these, more than 7,500 have been identified by the registrar of companies (RoC) in Delhi and Haryana alone, they added.

The government had undertaken a similar exercise after the demonetisation in 2016. "However, during that exercise, the companies which were dormant for over two years and didn't show any business operations were identified and struck off ... In this case, we are taking action against those which haven't commenced any business six months from their incorporation," said a senior government official.


"The view is that a genuine company floated with the purpose to carry out business or trade will commence its business immediately," the official said.

"This is part of the government's efforts towards a clean-up of shell or dormant firms and promote legit companies which actually do business."

Procedure involved
As per the MCA, there are more than 2.3 million registered companies in the country, of which over 1.4 million are active. As many as 800,000 companies have closed operations.

Section 248 of the Companies Act empowers the RoC to deregister companies.

"As per the procedure, an email communique is sent to the company and its directors before the RoC orders striking it off. The company has a period of two months to reply. In the event no response is received, the RoC can issue a public notice, following which the company stands dissolved," explained another official in the know.

Officials said striking off the name would not remove the liability, if any, on the directors or the companies.

"In one such case we found that the director had taken a loan using a dormant company. So, while the company name has been struck off, the liability on the director continues," said an official. "In future, if any liability is found on the part of the company, or during the course of the probe by any law enforcement agency it is found that dubious transactions were carried out using such entities, then the company and its directors would be liable for prosecution."

Once struck off, the list is put out on the MCA website. "Parallelly, the list will be shared with the law enforcement agencies, or they could reach out to the concerned RoC while verifying the details of a company under investigation," the official said.