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SIT on Black Money calls for greater vigilance in cases where multiple companies operate from the same address

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The Special Investigation Team (SIT) on Black Money, in its 3rd report has called for greater vigilance of companies that operate from the same address and also in case of persons who hold directorship in more than 20 companies. As per the data in the SIT report, close to 1% of the companies registered in the country share their address with at least 19 more companies.

The Special Investigation Team (SIT) on Black Money, in its 3rd Report has called for greater vigilance in cases where multiple companies operate from the same address and also in case of persons holding directorship in more than 20 companies. These recommendations were made by the SIT while dealing with the issue of Shell Companies and Beneficial Ownership.

 Shell Companies to launder Black Money

The SIT report mentions the following from the report of the Committee headed by Chairman, CBDT on “Measures to tackle Black Money in India and Abroad” submitted in 2012.

“The primary method of generation of black money remains suppression of receipts and inflation of expenditure. The suppression could be over a range of businesses and industrial activities which are covered by what may be called ‘primary’ enactments to regulate sale receipts, actual production, charging amount in excess of statutory amounts, etc”.

The SIT report mentions that the use of shell companies to provide entries to launder black money has been observed in a number of high profile cases investigated or under investigation in the recent past.

Recommendations to detect Shell Companies

The report talks of the following twofold strategy to counter this menace. The following recommendations were also made by the SIT to proactively detect shell companies.

Proactive detection of creation of shell companies by intelligence gathering through regular data mining and dissemination of information gathered to various law enforcement agencies for active surveillance.

According to the report, the Serious Frauds investigation office (SFIO) needs to actively and regularly mine the Ministry of Corporate Affairs (MCA) database for certain red flag indicators. These red flag indicators could be based on common DIN numbers in multiple companies, companies with same address, same contact numbers, use of only mobile numbers, sudden and unexpected change in turnover declared in returns etc.

Once certain companies are identified through data mining above, the list of such high risk companies should be shared with CBDT and other agencies for surveillance.

Deterrent penal action against persons involved in creation of shell companies and providing accommodation entries.

Persons who held Directorship in more than one Company

The SIT obtained data from MCA on persons who held Directorship in more than one Company.  As per the data provided by MCA, there are 2627 persons holding Directorship in more than 20 Companies. This is in violation of Section 165 of the Companies Act, 2013.  This is also a violation of the erstwhile Companies Act, 1956. According to the report, the total number of Companies involved is 77696. This is more than 5% of all the registered companies in the country.

special investigation team on black money_persons directorship more than one company SIT on Black MoneyMultiple Companies with the Same Address

As per the data mentioned in the report, a total of 345 addresses have at least 20 Companies operating from the same address.  The total number of Companies sharing their address with at least 19 more Companies are 13581 in number.  The SIT report says that while there is no specific Act/Rule which debars Companies from having the same address; it recommends greater vigilance while examining the operations of such Companies. Almost 1% of all the companies registered in the country share their address with at least 19 more companies.

special investigation team on black money_multiple companies same address SIT on Black MoneyWell known practice of using same credentials

Activists from Hyderabad had exposed the real estate company Maytas Properties Pvt. Limited for such similar practices in 2009.  This company was also under the scanner in the Satyam Scam. Maytas was promoted by the sons of Mr. Ramalinga Raju, the founder of erstwhile Satyam Computer Services.  According to them, about 14 different companies were floated by different Rajus and in most of the companies; the controlling stake was with the Byrraju family of Mr. Ramalinga Raju.

Some of them share the same address and more importantly, multiple individuals and companies used the same email ID. According to the documents available on the MCA website, one particular email ID was being used by 5 different individuals and two different companies.

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