Over 2 Lakh Companies Deregistered, Bank Accounts Inaccessible
Over 2.09 lakh companies struck-off the companies register.
The government has struck-off 2.09 lakh companies from the register of companies as they had not carried out any business operations in the past two years.
The deregistration has been done under Section 248 of the Companies Act, 2013 and disempowers all these companies’ directors and authorised signatories from operating company bank accounts, according to a media statement issued by the finance ministry.
These individuals will therefore not be able to operate bank accounts of such companies till such companies are legally restored under Section 252 of the Companies Act by an order of the National Company Law Tribunal. The restoration, as and when it happens shall be reflected by change in the status of the company from ‘Struck off’ to ‘Active’.Finance Ministry Statement
Under section 248 of the Companies Act, the Registrar of Companies can remove companies from the register if a company fails to commence business within one year of its incorporation, or if a company is not carrying out any business operations for two preceding financial years, and has not acquired status of a dormant company.
When investigations find these companies non-operational, notices are sent to such companies for responses. If companies fail to respond, such companies are deregistered or struck off, a government official told BloombergQuint on condition of anonymity.
The 2.09 lakh companies have up to three years to appeal to the National Company Law Tribunal against their deregistration.
Why Deregistration?
The 2.09 lakh companies were registered in over 20 cities including Mumbai, Delhi, Bengaluru, Chennai, Ahmedabad, Patna, Shillong and others.
The finance ministry statement does not characterise these companies as ‘shell companies’. It offers no further explanation for the large-scale deregistration except to say these companies were deregistered under Section 248 (5).
But the official quoted above said these efforts are to preclude money laundering by shell companies. Although it may not weed out black money, it is an attempt to curb the measures involved in channeling the same, he added.
India currently has no legal definition for a ‘shell company’. But in a statement in February the finance ministry described such companies as having -
- Nominal paid-up capital.
- High reserves and surplus on account of receipt of high share premium.
- Investment in unlisted companies.
- No dividend income.
- High cash in hand.
- Private companies as majority shareholders.
- Low turnover and operating income.
- Nominal expenses.
- Nominal statutory payments and stock in trade.
- Minimum fixed asset.
Banks Beware
According to the finance ministry statement, the Department of Financial Services with the help of Indian Banks Association, has advised banks to take immediate steps to put restrictions on bank accounts of such struck-off companies.
"In addition to such struck-off companies, banks have also been advised to go in for enhanced diligence while dealing with companies in general," the statement said.
A company with an active status but found defaulting in filing of its due financial statements or annual returns, among others, should be treated as suspicious by banks, the statement added.