New Delhi [India], Sept 6 : In a move to strengthen the rules and procedures of corporate governance, the Centre on Wednesday stated that in case the director or authorized signatory of any "struck off" company tries to illegally siphon-off money from its bank account, he/she may attract punishment of imprisonment of not less than six months, extendible to 10 years.
Further, if found that the fraud involves public interest, the punishment shall not be less than three years and a fine may also be imposed equal to three times the amount involved.
Following the instructions issued by the Department of Financial Services (DFS) to all the banks on Tuesday, the directors (ex-) or their authorised signatories had been restricted from operating bank accounts of such companies and cannot siphon off money from the accounts of these "struck off" companies.
However, even prior to such action, if they have siphoned off any money, strict action would still be taken against them, an official release from the Centre stated.
In a review meeting chaired on Wednesday by Minister of State for Corporate Affairs P.P. Chaudhary, 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.
t is expected that as a result of this exercise, at least two to three lakh of such disqualified directors shall get debarred.
Apart from the action restricting the operation of bank accounts of these companies and consequential effect on the directors, efforts are also being made to identify the actual beneficiaries and persons behind such shell companies.
Profiles of directors consisting of their background, antecedents and their role in the functioning of these companies are being compiled in collaboration with enforcement agencies.
Identification of more shell companies is also in progress. Additionally, the professionals, chartered accountants, company secretaries and cost accountants associated with such companies involved in illegal activities have been identified in certain cases and the remedial action by professional institutes such as ICAI, ICSI and ICAoI are being monitored.
Chaudhary said the exercise of weeding out shell companies would not only help in checking the menace of black money, but would also promote an ecosystem of 'Ease of Doing Business' and enhancing investors' confidence to which the present government is fully committed.
"The financial status of the companies would be reflected in a true and fair manner which would minimise the possibility of frauds and tax evasion.
Further, the availability of funds for illegal purposes will also be choked. Therefore, the interest of stakeholders would be fully protected and the image of the country in the global business arena would substantially improve," he added.
In the meeting, the Minister had also stressed upon the need of taking holistic steps and expeditious action for addressing the menace of the shell companies and their role in money laundering and black money circulation.
He had then asked the Secretary, Ministry of Corporate Affairs to take-up the issue immediately with DFS, Ministry of Finance to ensure that banks are instructed to restrict operations of bank accounts of shell companies.
DFS, in turn, took prompt action in this regard and advised the Banks to take expeditious action accordingly.
Earlier, the names of over two lakh companies were struck off from the Register of Companies under Section 248 (5) of the Companies Act, thereby prohibiting the operation of the bank accounts of such companies till they are legally restored under Section 252 of the Companies Act by an order of the National Company Law Tribunal (NCLT).
An official release from the Department of Financial Services, Ministry of Finance, notified that the government struck off 2,09,032 companies from the official register.
Further, the existing directors and authorized signatories of such companies will now become ex directors or ex authorised signatories, the release said.
In addition to such struck off companies, banks have also been advised to go in for enhanced diligence while dealing with companies in general.
A company even having an active status on the website of the Ministry of Corporate Affairs but defaulting in filing of its due financial statement (s) or annual return (s) of Particular of Charges on its assets on the secured loan should be seen with suspicion as, prima facie, the company is not complying with its mandatory statutory obligations to file this vital information for availability to its stakeholders.
The release also stated that the restoration, as and when it happens, shall be reflected by change in the status of the company from 'Struck off' to 'Active'.