Crackdown on shell companies: 4.5 lakh directors may face axe

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New Delhi: Intensifying its crackdown on shell companies and their operators, government is likely to disqualify as many as 4.5 lakh directors.

Union minister P P Chaudhary on Thursday said that the government will examine profiles of all disqualified directors and non-compliant companies which are tarnishing image of good ones.

Asserting that genuine corporates will not face action, the minister of state for corporate affairs said non-compliant companies are tarnishing the image of good ones.

As the ministry pushes ahead with the efforts to weed out shell companies -- a term used for entities that have not been carrying out business for long and are allegedly used as conduit for illegal fund flows -- Chaudhary told PTI in an interview that the profile of all disqualified directors will be examined.

The ministry has struck off names of 2,17,239 companies from the records as on September 22 as these have not been carrying out business activities for a long period and have also defaulted on compulsory filings while more such firms are likely to face action.

"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 said.

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," he said.

The exercise of striking off dormant companies and disqualifying directors is in furtherance of ease of doing business and will be good for genuine corporates, he noted.

"Non-compliant companies are tarnishing the image of good companies," Chaudhary said, adding that action should have been taken long ago.

With PTI Inputs