India to eliminate fake companies under new crackdown

As many as 1.3m companies are currently registered in India, with many suspected to be shell or fictitious companies which their holding companies use for siphoning of funds
India to eliminate fake companies under new crackdown
Various courts in India and governement investment agencies are currently dealing with scores of the cases related to promoters and companies involved in money laundering or duping of their investors. A significant number of such cases is in the real estate sector.
By James Mathew
Tue 19 Mar 2019 12:25 PM

India has launched a major drive to eliminate fictitious companies operating in the country, with the federal ministry of corporate affairs fixing April 25 this year as the deadline for companies to comply with its new eKYC (know your customer) rules.

Under eKYC, companies have to mandatorily register various details about their promoters, directors, ownership structure and business operations with the ministry of corporate affairs.

As many as 1.3 million companies are currently registered in India, with many suspected to be shell or fictitious companies which their holding companies use for siphoning of funds.

“We want to fully move to a totally technology-enabled, machine reading kind of systems for processing for all company registration and compliance related activities, reducing manual interference to the lowest minimum level – just about one percent or so,” a senior official at the federal corporate affairs ministry told Arabian Business.

“The ministry official said companies which fail to comply with the new eKYC norms by the deadline will be barred from taking any new business related decisions such as making fresh fund infusion into the company, going for mergers, acquisitions, appointment or change of directors or location change of any of their registered offices or other premises.”

Under fire

The Indian government came under fire from opposition and courts after some of the high profile industrialists left billions of dollars of unpaid loans taken from several Indian and multinational banks in the country.

Various courts in India and governement investment agencies are currently dealing with scores of the cases related to promoters and companies involved in money laundering or duping of their investors. A significant number of such cases is in the real estate sector.

“The estimate is that not more than 70,000 or so companies out of the 1.3 million companies currently registered in India could be genuine. We will have a clear estimate on this once the deadline for complying with the eKYC norms gets over,” the ministry official said.

A similar drive launched for eKYC compliance for directors on the board of companies have so far resulted in only about 17,000 of the listed 35,000 directors complying with this.

“Either the remaining numbers of directors are yet to comply with this or they could be fictitious or dummy directors,” the ministry official said.

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