After a long wait, the Institute of Chartered Accountants in India (ICAI) is all set to define a “Shell Company”with an object to regulate such firms.
With this, the legal lacuna on shell companies may soon get filled with since the Companies Act does not provide a definition for such Companies.
In the absence of a definition, both Corporate Affairs Ministry and SEBI have been unable to take action against shell companies although they have been able to identify them.
A list of about 330 companies–identified as shell companies by the Government– has been toing and froing between Corporate Affairs Ministry and SEBI with both contending that it is for the other to take the necessary action.
Simply put, a shell company is a non-trading company that is used as a vehicle for financial manoeuvres. It is kept dormant without active business operations and used illegitimately to disguise business ownership from law enforcement agencies or public.
Naveen N.D.Gupta, Vice President, Institute of Chartered Accountants of India (ICAI) told to Business Line that ICAI’s Central Council will now finalise a definition for “shell company”.
“The matter (proposal to define Shell Company) is now an agenda item of our Council”, Gupta said.
Reportedly, ICAI has urged the Corporate Affairs Ministry to bring amendments to Companies Auditors Report Order (CARO) so as to incorporate the concept of “shell companies” in such order.
The suggestion is to amend CARO to require a statutory auditor to certify if the company concerned is a shell company or not.
Having a definition for “Shell Company” and amending CARO is expected to empower the Government and regulatory agencies to take the necessary action against shell companies, sources added.
