Government planning to bring shell companies out of their shell

New Delhi: The government is planning to tighten regulations to bring shell companies under stricter supervision and address regulatory blind spots. The ministries of finance, corporate affairs and law are examining suggestions, including for the creation of a shell company registry and adopting a more nuanced definition of 'shell company', said people familiar with the development.

Currently, while the Companies Act, 2013, defines a 'dormant company' under Section 455, there is no formal definition of a shell company. Firms without active business operations or significant assets, which in some cases are used for illegal purposes such as tax evasion, money laundering, obscuring ownership and benami properties, are usually referred to as shell companies.

Addressing Supervision Gaps
"A meeting between all stakeholders, including officials from intelligence agencies, was held last month, where issues such as more stringent norms, modalities for setting up a central registry for shell companies and measures to address supervision gaps between different regulators were discussed," said a government official, who did not wish to be identified.

These were initial deliberations initiated by the finance ministry and a formal proposal will be prepared on the basis of inputs, according to the official.

Another official said that one of the suggestions pertained to leveraging information through the Central Know Your Customer Registry (CKYCR) maintained and operated by the Central Registry of Securitisation Asset Reconstruction and Security Interest of India. "It is being ascertained whether this database can be integrated and shared with banks and financial institutions for early detection and risk mitigation," the official added.