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The Tax Publishers Disqualification of Directors Linked with Shell Companies Pragya Bhandari Directors of Shell Companies have been identified by MCA for disqualification under section 164(2)(a) of the Companies Act, 2013. This article seeks to lay emphasis on the legal provisions as to disqualification of directors on account of default by a shell company in filing of annual statutory documents and also the scheme launched by the MCA for providing relief to defaulting companies and their directors. 1. Prelude Around 2 lakh companies have been stuck off from the records of the Registrar of Companies and the Government froze the bank accounts of these companies. In this context, the Central Government has identified more than 3 lakh directors who were associated with the shell companies. MCA has identified 1.06 lakh directors among 3 lakh directors for disqualification as companies did not file their financial statements or annual returns for any continuous period of three years, violating provisions of the Companies Act, 2013. This is part of actions to break the network of shell companies and the fight against black money or money laundering activities. The Companies Act, 2017 enshrines the provisions related to disqualifications of directors. Disqualification has been occurred as per section 164(2)(a) of the Companies Act, 2013. 2. Meaning of 'Shell Company' The term 'Shell Company' has not been defined under the Companies Act, 2013. In common parlance, 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. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Disqualification of Directors Linked with Shell Companies

Pragya Bhandari

Directors of Shell Companies have been identified by MCA for disqualification under section 164(2)(a) of the Companies Act, 2013. This article seeks to lay emphasis on the legal provisions as to disqualification of directors on account of default by a shell company in filing of annual statutory documents and also the scheme launched by the MCA for providing relief to defaulting companies and their directors.

1. Prelude

Around 2 lakh companies have been stuck off from the records of the Registrar of Companies and the Government froze the bank accounts of these companies. In this context, the Central Government has identified more than 3 lakh directors who were associated with the shell companies.

MCA has identified 1.06 lakh directors among 3 lakh directors for disqualification as companies did not file their financial statements or annual returns for any continuous period of three years, violating provisions of the Companies Act, 2013. This is part of actions to break the network of shell companies and the fight against black money or money laundering activities. The Companies Act, 2017 enshrines the provisions related to disqualifications of directors. Disqualification has been occurred as per section 164(2)(a) of the Companies Act, 2013.

2. Meaning of 'Shell Company'

The term 'Shell Company' has not been defined under the Companies Act, 2013. In common parlance, 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.