BackOpinion | Cracking shells
The aim is to identify shell companies that exist only on paper for dubious purposes such as money-laundering
PremiumThe ministry of corporate affairs has begun a crackdown on companies that have failed to file their geo-tag details, including photographs of their offices and directors. The aim is to identify shell companies that exist only on paper for dubious purposes such as money-laundering. The scale of the problem is evident from the fact that only about 60% of the nearly 1.9 million companies registered in India are active. Why do the rest even exist?
To the extent the government’s action uncovers fraud, it is welcome. But authorities should remember that not all such companies are engaged in illegal activities, a presumption that overzealous officials could be prone to make. Such companies could have been legitimately set up to hold assets, such as intellectual property or treasury shares, or to quarantine high-value assets to resist a hostile takeover. So any penal action should be preceded by a fair opportunity given to justify their operations. In addition, easing liquidation rules will help zombie companies shut down. Many exist only because shutting shop is too much of a bother. Any action without such a regulatory overhaul will be an unsatisfactory solution.
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