Key Points
- The MCA has struck off 2.33 lakh companies in the last five years, focusing on dormant and non-compliant firms.
- The goal is to remove shell companies that are suspected of being involved in illegal financial activities like tax evasion and money laundering.
- States like Maharashtra, Delhi, Uttar Pradesh, Karnataka, and Tamil Nadu have been the biggest offenders.
- In FY22-23, the MCA removed the highest number of companies—82,125 firms.
- There is no official definition of “shell companies,” but the MCA targets firms that don’t comply with regulations, like not filing returns for several years.
- The MCA has worked with investigative agencies and used advanced data tools to carry out more precise actions.
Looma News
As part of a large crackdown on non-compliant businesses, the Ministry of Corporate Affairs (MCA) has removed 2.33 lakh inactive or potentially illegal companies from India’s corporate registry over the past five years. The government’s main focus has been on eliminating shell companies, which are often linked to illegal financial activities such as tax evasion, money laundering, and fraudulent transactions. Although the Companies Act doesn’t define “shell companies,” action has been taken against companies that fail to meet legal requirements, such as not filing necessary financial documents for multiple years.
Corporate Hotspots
States like Maharashtra and Delhi have seen the highest number of companies removed, with 36,856 and 35,637 firms struck off, respectively, between 2019 and 2024. Other states like Uttar Pradesh, Karnataka, and Tamil Nadu have also had a significant number of companies removed. This shows that non-compliance is a widespread issue, even in some of India’s biggest economic centers. In contrast, smaller regions like Ladakh and Lakshadweep reported very few removals, indicating lower levels of corporate activity in those areas.
Rising Non-Compliance
The breakdown of figures shows a sharp rise in non-compliance, especially in FY22-23, which saw the largest number of companies removed, 82,125. Experts believe this spike is due to increased government vigilance following the pandemic, when shell companies were suspected of abusing relief programs and engaging in fraud. The MCA’s goal is to improve corporate governance and rebuild trust in India’s business environment.
A Legal Gap
Despite the extensive crackdown, the MCA faces a major challenge: there is no legal definition of “shell companies.” The MCA has been taking action based on sections 455 and 248 of the Companies Act, which target companies that are either dormant or not meeting compliance requirements. If a company doesn’t start operations within a year of being set up or fails to file returns for two years in a row, it can be investigated. The MCA has used both physical checks and data analytics to identify these non-compliant companies, which might be used for illegal purposes.
Collaborative Efforts
The MCA has strengthened its efforts by working closely with investigative agencies like the Serious Fraud Investigation Office (SFIO). Through the MCA-21 portal, authorities have used advanced data analysis to carry out precise and efficient removals. This is part of a larger government initiative to improve corporate governance and make India’s business environment more transparent, as explained by industry experts.
