Crackdown on shell companies may seal fate of 4.5 lakh company directors

The government is likely to disqualify as many as 4.5 lakh company directors as it intensifies the crackdown on shell companies and their operators, minister of state for corporate affairs P P Chaudhary said today.

He said the government will examine the profiles of all disqualified directors and non-compliant companies which are tarnishing image of the good ones, even as he asserted that genuine corporates will not face action.

Following the demonetisation drive the government embarked on a cleansing drive to get rid of fake companies – the so-called shell companies - that have not been carrying out business for long and were allegedly being used as conduit for illegal fund flows.

The ministry of corporate affairs has struck off names of 2,17,239 companies from the records as on 22 September as these have not been carrying out business activities for long and have also defaulted on compulsory filings.

"As on September 22, a total of 3,19,637 directors have been identified and flagged as disqualified under Section 164 (2) (a) of the Companies Act, 2013... It is estimated that the final list may touch the figure of about 4.5 lakh (directors)," Chaudhary is reported to have told PTI in an interview.

Section 164 pertains to disqualification for appointment of director. Under sub-section 164(2) (a), a person who has been a director with a company that has not filed financial statements or annual returns for three consecutive financial years will face disqualification.

"It shall also be important to examine their (disqualified directors) general profile and association with other companies and the levels of their corporate governance standards," the report quoted him as saying.

The weeding out of dormant companies and disqualifying directors will further the cause of genuine investors and improve the ease of doing business, he noted.

"Non-compliant companies are tarnishing the image of good companies," Chaudhary said, adding that action has been long overdue.