The shell companies, were not a big deal until this August, when the government cracked down heavily at the companies, that did no business at all except wiring funds. A shell company is a company that has no business, ye keeps books, and the are maintained only to siphon off money, from one or the other source.
The sources that a shell company uses might be money got by ill means, or surplus profits which are aimed at avoiding the taxman’s net. This enterprise was, or rather still is a business. The shell company business does not only flourish in India, but happens across the world.
The leaks, or the Panama Papers, and now the Paradise Papers, bring to light such firms that are existing on paper only to siphon off funds and make tax planning more effective. This happens on a very big scale across the world.
Every business needs tax planning to save the taxes that they are supposed to pay, while they use the economic system of the country. It has been a common phenomenon that companies with big wallets don’t wish to enter the markets where there are heavy taxes imposed on their profits.
This is true about the homegrown companies which also devise ways to survive and hide their wallets from the taxman. Thus, the shell companies come into existence. The large tract of the wealth put into circulation by these companies makes them only specialise in the array of money management, while they should be actually doing some business that would have provided jobs to needy, rather than inflating the wallets of the rich.
The bigger problem now before the governments is the spirit of survival, rather the legitimacy of promoter and directors of these shell companies who not only make mockery of the law their business but also remain involved in the profit-making business ventures that actually do constructive work.
The arguments in favour of such directors and promoters are none except their need to transact to make their real businesses flourish, while the broader argument is that should not these people be punished to deter more people from committing corporate frauds in the future.
These directors and promoters who have made it their business to play with the law, morally and ethically must retire from the businesses, and their cases pertaining to reinstating their identities as directors and promoters of others be junked. Though there remains a method to counter the same, where they may tap some other person to dance to their tunes and carry out their instructions, yet the future of the person so involved, will also be at risk.
These directors and promoters have played a fraud on every person who expressed interest in their ventures, many of these companies also for namesake, started up a realty project where they left the entire dealing unsettled and fled.
The minister for state for corporate affairs, pushed for disqualifying directors who have not filed returns for the last 3 years or more, while the NCLT also barred directors from bidding for interest in their defaulting companies. These are positive moves in the direction of providing a clean system of corporate affairs, yet the role of Chartered Accountants, Company Secretaries and Cost Accountants in these shell companies need a greater scrutiny.
The government will have to be more vigilant and bar such directors and promoters of seeking roles of responsibility in the corporate scenario unless they file some guarantee before the government affirming that they will not be proceeding with their past conduct again, through other channels.
The cleanliness drive needs a greater vigilance mechanism, where people work in a spirit of patriotism, or for righteousness’ sake.