Shell companies’ directors face up to 10 years imprisonment for siphoning funds

Sep 06, 2017 07:16 PM IST | Source: Moneycontrol.com

This follows the direction to all banks on Tuesday to restrict directors or authorized signatories of struck off companies from operating the bank accounts

Moneycontrol News The government on Wednesday decided that any director or authorised signatory of any “struck off” company found to be unauthorisedly siphoning off money from its bank account may attract punishment upto 10 years.“He/she may attract punishment of imprisonment of not less than six months extendible to 10 years,” a government statement said. If it is found that the fraud involves public interest, the punishment shall not be less than 3 years and fine may also be imposed which would be three times the amount involved.

This follows the direction to all banks on Tuesday to restrict directors or authorized signatories of struck off companies from operating the bank accounts. However, even prior to such action, if they have siphoned off any money, strict action would still be taken against them, the statement said.In a review meeting chaired by the Minister of State for Corporate Affairs, PP Chaudhary on Wednesday, it was also decided that the Directors of such shell companies which have not filed returns for three or more years, will be disqualified from being appointed in any other company as Director or from being reappointed as Director in any of the companies where they had been Directors, thereby compelling them to vacate office. “It is expected that as a result of this exercise, at least two to three lakh of such disqualified Directors shall get debarred,” the statement said.

All efforts are also being made to identify the actual beneficiaries and persons behind such shell companies. Profiles of directors such as their background, antecedents and their role in the operations are being compiled in collaboration with enforcement agencies, the statement said.Identification of more shell companies is also in progress. The professionals, chartered accountants, company secretaries and cost accountants associated with such shell companies and involved in illegal activities have been identified in certain cases and the action by professional Institutes such as ICAI, ICSI and ICAoI are being monitored, the statement said.Chaudhary said that as a result of the exercise of weeding out shell companies, it would not only help in checking the menace of black money but also would promote an ecosystem of “Ease of Doing Business” and enhancing investors’ confidence.

He said that the financial status of the companies would be reflected in a true and fair manner which would minimize the possibility of frauds and tax evasion. Further, the availability of funds for illegal purposes will also be choked, the statement said.