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LATEST NEWS UPDATES | Centre close to cracking shell firm puzzle; panel decides 18 parameters -Shrimi Choudhary

Centre close to cracking shell firm puzzle; panel decides 18 parameters -Shrimi Choudhary

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published Published on May 2, 2018   modified Modified on May 2, 2018
-Business Standard

The task force also highlighted that companies had been misused to channel unaccounted cash after demonetisation in November 2016

Mumbai:
The government’s task force has arrived at a formula to define a ‘shell company’, a move critical for enforcement agencies to crack down on dubious entities exploiting the regulatory framework.

According to sources, the task force has listed 18 key parameters, including beneficial ownership and the nature of business dealings, to determine if a company has been created to launder money or exploit regulatory arbitrage.

A company that lacks beneficial ownership, is inconsistent in big-ticket transactions, or is one that does repetitive transactions with no apparent business purpose could be tagged a ‘shell company’.

Further, any company that transfers large sums to a related party, and makes disproportionate investments in shares of other companies or one with dubious directors could be termed shell entities. Companies whose shares quote a high premium to their face value despite having nominal share capital too could fall into the category.

The panel, set up in July 2017, has extensively defined each attribute of a shell company, based on suggestions it had received from probe agencies and regulators, including the Enforcement Directorate, Securities and Exchange Board of India, Financial Intelligence Units, and the Central Board of Direct Taxes.

Sources say the task force has submitted its report to the Prime Minister’s Office, the Ministry of Finance, and the Ministry of Corporate Affairs (MCA) for feedback.

“It is well understood that just defining a shell company is not enough to identify potential shell companies as there is a very thin line between legitimate businesses and illegitimate businesses, which depends on the merits and facts of each case.

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Business Standard, 1 May, 2018, http://www.business-standard.com/article/economy-policy/centre-close-to-cracking-shell-firm-puzzle-panel-decides-18-parameters-118050100056_1.html


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