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Last Updated : Sep 10, 2018 06:46 PM IST | Source:

Crackdown on shell cos: India Inc may soon have to geo-tag their offices to prove authenticity

Geo-tagging will allow the online return filing system to alert government officials wherever it detects far too many companies registered in the same premises

Moneycontrol News @moneycontrolcom

In a bid to tighten regulatory norms and crackdown on shell companies, the government will now ask companies to geo-tag their registered offices in statutory filings with the Registrar of Companies (RoC), the Mint reported. Geo-tagging means providing data of the exact location of the office. It will allow the online return filing system to alert government officials wherever it detects far too many companies registered in the same premises.

Minister of State for Corporate Affairs PP Chaudhary said, “This will help us identify instances of one building being used by hundreds of shell companies as their registered office or of companies citing vacant plots as their registered office address. It will serve as an early warning system for detecting mushrooming of shell companies.”

These companies inflate costs by producing fake invoices and laundering wealth in the form of equity or loans through false transactions. The government wants to prevent the abuse of the corporate structure by such companies.

Shell companies only exist on paper and many such firms were found with the same address offering ‘accommodation entries’ without any commercial substance. In 2015, a special investigation team headed by Justice MB Shah unearthed the role of these companies in money laundering cases.

The ministry’s IT structure will contain coordinates of the companies’ location to further focus attention on common addresses, contact numbers, directors, and sudden and unexpected change in revenue etc. New entities will be required to geo-tag their offices at the time of incorporation. Existing companies will have to provide their coordinates while filing annual returns.

The government wants to define what a shell company is. Many dormant companies were found after demonetisation of high-value currency notes in November 2016. However, not all defunct companies are involved in fraud. Most of them only miss out on the statutory requirement of filing annual returns. In some cases, companies default due to lack of business activity.

In an earlier attempt to crack down on shell companies, the government had struck down over 2 lakh shell companies from its records for not filing their annual returns for more than two years. Some cases were even probed. At least 68 companies are under scanner at present with regard to their owners. These companies deposited more than Rs 25 crore after demonetisation, which was suspicious.

Experts said many companies having one address does not point to wrongdoing and that it was common among a certain type of professional services to form a cluster and use common infrastructure.
First Published on Sep 10, 2018 10:32 am
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