The Tax Publishers

SEBIs Directions against Shell Companies without Investigation- Whether Justifiable

Purnendu Sahai

1. Introduction

Many companies have been suspected to launder the black money after demonetisation. In recent years, there has been a rise in the number of shell companies floated across the country. Thus, there is a lot of possibility of using the shell companies for money laundering or tax evasion or other fraudulent purpose. Capital markets regulator Securities and Exchange Board of India (SEBI) found 331 companies, as were allegedly shell companies and may have been used for money laundering. Actually, SEBI had received a list of such 331 companies from the Ministry of Corporate Affairs (MCA). The list included listed companies also.

2. Shell Company- Meaning of

A company is classified as a shell company if it is a non-trading company used as a vehicle for various financial manoeuvres or kept dormant for future use in some other capacity. In other words, shell companies include multiple layers of companies that have been created for the purpose of diverting money i.e. almost no economic activity. Further, assets are held only on paper and not in reality. However, all shell companies do not money laundering vehicles. There are many shell companies which work under legal limits and do not have financial irregularities.

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