Mumbai: Banks have started the process of scanning account details of directors disqualified by the ministry of corporate affairs to analyse their links with shell companies and check whether they diverted funds, according to senior executives of four public sector banks, who did not want to be named.
“The exercise will take at least three weeks to complete because the list runs into several hundred pages. After shortlisting the names, we will prepare a report on the transactions conducted and submit to the government," said one of the four officials, a banker with a large Mumbai-based bank.
Shell companies, though not defined under the Companies Act, are those that adhere to basic company laws and are used to avoid taxes and launder black money.
ALSO READ: What are shell companies?
On 5 September, the finance ministry restricted the directors of around 200,000 dormant companies struck off official records from accessing their companies’ bank accounts.
The move, part of the government’s crackdown on black money, was followed by the department of financial services, which is a part of the finance ministry, advising banks to immediately place restrictions on the bank accounts of such struck-off companies.
Subsequently, the ministry of corporate affairs issued a statement on 12 September, saying it had identified 106,000 directors of companies that did not file their financial statements or annual returns for three straight years, violating provisions of the Companies Act, 2013. Later, the names of these directors were made public.
According to bankers, the list of disqualified directors will be matched with the records of the banks to check if they also have links to accounts of companies other than shell companies.
“Since these are defunct companies, most of them have only a few transactions. So whatever transactions that took place with the related party will be studied," said the second of the four unnamed bankers.
In cases of active accounts linked to the shell companies or disqualified directors, there will be stepped-up vigilance to ensure that loan exposure, if any, is not risk for default, said the second person.
According to Ramesh K. Vaidyanathan, founder and managing partner of law firm Advaya Legal, while it is easier for banks to ascertain transaction details, utmost care must be followed before tagging all suspicious transactions as fraudulent.
“Many a time, companies float SPVs (special purpose vehicles) for new projects; but later, if the project does not materialize, bank accounts of SPVs become defunct because there is no transaction. Now, names of such companies may get shown in the system, possibly because of linkage with disqualified director. This does not mean that this is a mala fide transaction or that an independent director should be ejected from all boards that he or she is part of," he said.