Lok Sabha Question No. 2113 (UNSTARRED), answered on 2017-07-28
Subject: Shell/Ponzi Companies
Ministry: FINANCE
Asked by: KIRIT SOMAIYA

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE LOK SABHA UNSTARRED QUESTION NO.2113

TO BE ANSWERED ON FRIDAY, THE 28 TH  JULY, 2017

SHRAVANA 6, 1939 (SAKA)

## SHELL/PONZI COMPANIES

## 2113. DR. KIRIT SOMAIYA:

## Will the Minister of FINANCE be pleased to state:

- (a)  whether  the  Government  has  formed  a  task  force  to  examine  the  details  of  shell companies/ponzy  companies/khoka  companies  and  if  so,  the  details  thereof  along  with  the action taken in this regard till date;
- (b) the details of the outcome of the enquiry so far and the action taken thereof;
- (c) whether his Ministry/Department and other agencies are sharing their information with all other concerned agencies so that these companies and their directors/owners can be booked and if so, the details thereof;
- (d)  whether  the  Government  has  taken  any  steps  to  freeze/make  non-operational  the  bank accounts of the companies and their directors/owners and if so, the details thereof;
- (e) whether any other steps are being taken so that the companies and their directors/owners shall not open new accounts in any banks in India; and
- (f) if so, the details thereof and if not, the reasons therefor?

## ANSWER MINISTER OF STATE FOR FINANCE

(SHRI SANTOSH KUMAR GANGWAR)

- (a) & (b):  A 'Task Force on Shell Companies'  under the Joint Chairmanship of Revenue Secretary and Secretary, Ministry of Corporate Affairs was constituted in February, 2017 for effectively tackling the malpractices by such companies in a comprehensive manner adopting whole of the government  approach.  Other  members  of  the  Task  Force  are  from  Department  of  Financial Services, Central Board of Direct Taxes, Central Board of Excise & Customs, Central Bureau of Investigation, Enforcement  Directorate, Serious  Fraud Investigation Office and  Financial Intelligence Unit. The task Force has held five meetings so far. Decisions taken by the Task Force focusing  upon  most  effective  and  expeditious  actions  against  shell  companies  and  associated persons by the agencies concerned have duly been taken forward. Brief highlights of actions taken against shell companies in recent past include the following:
- (i) With a view to have consolidated relevant information at one place and based upon inputs from all  law  enforcement  agencies,  the  Serious  Fraud  Investigation  Office  under  the  Ministry  of Corporate Affairs has undertaken the exercise of preparing comprehensive digital database of shell companies and their associates that were identified by various law enforcement agencies.
- (ii)  During  last  three  financial  years  (2013-14  to  2015-16),  investigations  by  the  Income-tax Department have led to detection of more than 1155 shell companies/entities which were used as

conduits by over 22,000 beneficiaries. The amount involved in non-genuine transactions of such beneficiaries was more than Rs 13,300 crore. Criminal Prosecution complaints have been filed by the Income-tax Department against 47 persons. Action against such companies, the beneficiaries of non-genuine transactions and other persons associated therewith under the Direct Taxes law is a  continuous process and includes searches, surveys, enquiries, assessment of income, levy of taxes, penalties, etc. and filing of prosecution complaints in criminal courts, wherever applicable. (iii) Enforcement Directorate conducted nationwide searched in 16 states on 01.04.2017 in respect of shell companies and related professionals who were behind the creation and operation of these Companies.

- (iv) The CBI has registered 30 cases against 201 shell companies during the last 3 years viz. 2014, 2015, 2016 and the current year as on 28.2.2017.
- (vi) FIU-India Out of these, charge-sheets have been filed in 17 cases.
- (v) As on 12.07.2017, Ministry of Corporate Affairs has removed 1,62,618 Companies from the Register of Companies by following the due process under Section 248 of the Companies Act, 2013. Further, the exercise of identification of the directors of the companies defaulting in filing of Financial Statements or Annual Returns for continuous period of three financial years has been undertaken as part of the ongoing process for disqualification for reappointment as director in that company or in other company for a period of five years u/s 164(2) of the Companies Act, 2013.
- (vi)  FIU-India  has  also  alerted  its  Reporting  Entities  on  shell  companies  for  enhanced  due diligence.
- (c): Mechanism for sharing of information between various law enforcement agencies is already in  place  under  the  Regional  Economic  Intelligence  Council  (REIC)  and  Central  Economic Intelligence  Bureau  (CEIB)  forums.  Further,  with  a  view  to  streamline  and  strengthen  the information  sharing  mechanism,  a  new  Standard  Operating  Procedure  (SOP)  on  sharing  of information between various law enforcement agencies has been agreed to under the aegis of the Task Force.

Disclosure of information in respect of specific persons, however, is prohibited except as provided under section 138 of the Income-tax Act, 1961.

(d) to (f): The Government had requested the Reserve Bank of India (RBI) for freezing of accounts of  the  defaulting  companies  who  have  long  exceeded  the  stipulated  time  limit,  for  filing  of Financials  Statements  and  returns,  under  the  Companies  Act.  The  RBI  has  informed  that,  at present,  it  has  no  powers  to  freeze  such  accounts.  Moreover,  freezing  orders  issued  by  the Government as per the provisions of the relevant statutes such as Unlawful Activities Prevention Act or Foreign Contribution Regulation Act, are communicated by the RBI to the banks.

Further, the Government has requested the RBI to circulate the details of defaulting companies to all  the  banks  with  the  advice  to  exercise  enhanced  due  diligence  while  dealing  with  these companies.

********