Four days after the Securities Appellate Tribunal (SAT) has stayed a SEBI order putting restrictions on some suspected shell companies, Finance Minister Arun Jaitley said in Lok Sabha that there has to be a balance between the ease of doing business and ensuring that the firms are not misused.
Jaitley, who also holds charge of Corporate Affairs, said speedy steps are being taken against shell companies. Pointing out that there is no definition for shell companies under the Companies Act, he said such firms are being used for benami transactions. The real owners behind such entities need to be identified and expeditious steps are being taken under the benami and income tax laws, the minister said during question hour.
Replying to MPs, Jaitley mentioned SEBI’s action against suspected shell companies on stock exchanges, saying, “Caazaar mein thoda uthal puthal hua (there was some turmoil in the markets).”
On August 7, SEBI had asked stock exchanges to take action against 331 suspected shell companies that had been referred by the Ministry of Corporate Affairs. The SAT later granted relief to companies that approached it, ordering SEBI to lift trading restrictions on their shares on the ground SEBI had not investigated if the firms were shell companies.
Noting that a company can be registered in two days, Jaitley stressed the need for a balance in terms of ease of doing business and ensuring that the companies being set up are not misused. With technology, it is not difficult, he said.
Responding to a supplementary question by Congress member Shashi Tharoor, the minister said there is a distinction between dormant and shell companies. The laws were clear that if there is another beneficial owner on whose behalf the ostensible owner or the apparent owner is holding the shares, he has to file a declaration under section 187 of the old Companies Act and the corresponding provision in the new Act.
“I think where the member needs to have clarity is that there is a distinction between a dormant company and a shell company,” Jaitley said. “A dormant company is a company which is legitimately registered, which does not file its returns and does not comply with the provisions of the Companies Act.” He said some of these dormant companies can potentially be misused as shell companies.
“So, the concept of dormant companies exists in the Companies Act and therefore these companies are deregistered and it is these companies which we have just now deregistered. If they are misused, they will have to change the beneficial owner,” the finance minister said. If business is being done under a fake name, then the benami law would be applicable, he added.
BJD’s Baijayant Panda wanted to know whether the government would look at using biometric to weed out people behind shell companies. In response, Jaitley said the suggestion would be taken into consideration.