Nearly 3 lakh companies likely to face strict government action

NEW DELHI: The government has issued show cause notices to nearly 3 lakh firms that have not been carrying out business for long and are likely to face strict action starting this month.

As part of intensifying efforts to crack down on shell companies that indulge in dubious activities, the government is also preparing to cancel the registration of such firms after following due regulatory process.

Besides, the Corporate Affairs Ministry is in the process of preparing a database of shell companies in order to curb illegal activities, sources said.

They said the ministry has identified 2.96 lakh companies which have not submitted their financial statements for a continuous period of two or more financial years.

Prima facie, these entities were not conducting any business activities, they added.

The ministry, which is implementing the Companies Act, has sought to know from the 2.96 lakh companies as to why their names should not be struck off. Stringent regulatory action would be initiated against the erring entities in case their responses are unsatisfactory.

Final action would be taken in batches from this month June onwards after completing the due process, sources said.

The Registrars of Companies (RoCs) in various states and union territories have issued notices to more than two lakh firms under the Companies Act, 2013, according to information available with the Ministry.

These notices have been issued under Section 248 of the Act, which is implemented by the Ministry. This section pertains to striking off names of companies on certain grounds.

There are nearly 16 lakh registered companies in the country and only around 11 lakh of them are active.

As per the regulations, an RoC can seek explanation from a company if the latter has not commenced business within one year of getting incorporated under the Act.

Notice is also issued if a particular company has not been carrying out business for at least two continuous financial years and has not applied for dormant status.