Ministry of Corporate Affairs (MCA) identifies more than one lakh directors of shell companies for disqualification

Minsitry of Corporate Affairs (MCA) in a Press Release issued on September 12, 2017 said that, pursuant to the action of the Ministry of Corporate Affairs of cancellation of registration of around 2.10 lakh (2,09,032) defaulting companies and subsequent direction of the Ministry of Finance to banks to restrict operations of bank accounts of such companies by the directors of such companies or their authorized representatives, the Ministry of Corporate Affairs has identified 1,06,578 Directors for disqualification under Section 164(2)(a) of the Companies Act, 2013 as on September 12, 2017.

The numbers provided are staggering and it is a very big exercise government has taken up with the help of MCA, Ministry of Finance and other statutory bodies. In addition to companies and Directors, as stated in press release, The Professionals, Chartered Accountants/Company Secretaries/Cost Accountants associated with such defaulting Companies and involved in illegal activities have been identified in certain cases and the action by Professional Institutes such as ICAI, ICSI and ICoAI is also being monitored.

The Release further stated that, MCA is further analyzing the data of these companies available with the Registrar of Companies to identify the Directors and the significant beneficial interests behind these companies. Profiles of Directors such as their background, antecedents and their role in the operations/functioning of these companies are also being compiled in collaboration with the enforcement agencies. The money laundering activities performed under the aegis of these companies are also under the scanner. 

The above exercise is part of the strategy formulated by MCA and presented to the Union Finance Minister, Shri Arun Jaitley and the Minister of State for Corporate Affairs Shri P.P. Chaudhary. The Minister of State Shri Chaudhary is closely monitoring the situation emerging-out of cancellation of registration of such companies under the Companies Act, 2013. He is holding regular meetings with the officials of the Ministry of Corporate Affairs and its subordinate organizations such as Serious Fraud Investigation Office (SFIO), Registrars of Companies (ROCs), Department of Financial Services, Indian Banks Association and other Departments involved in the crackdown against such companies.

The Press Release has given a reference of Section 164 of the Companies Act, 2013 (The Act), under which provisions of disqualification of Directors of the Company are provided and Section 167 of the same Act which provides for vacation of office by Director.. Also, it has drawn attention to the Section 248 of the Act which provides for liability, if any, of every director, manager or other officer who was exercising any powers of management and of every member of the de-registered/dissolved company, shall continue and may be enforced as if the company had not been de-registered/dissolved.

Which means that MCA, probably for the first time, invoking provisions of Section 164 read with Section 167 and Section 248 on such a large scale to take action against more than 1 lakh Companies and their respective Directors and Professionals (CA, CS, CWA) etc who are involved with the Company.

"It may be noted that prior to action against defaulting companies, there were about 13 Lakh companies in the Registry. However, after closing of around 2.10 Lakh Companies, there are about 11 Lakh companies having Active status in the Registry" said the Press Release.


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