About 18 lakh independent directors serving on boards of thousands of companies could actually turn out to be dummies, according to initial trends of a mega government drive initiated to weed out fake names being listed as genuine directors.
“Out of 3.3 million directors (expected to carry out know your customer or KYC process) only 1.5 million or 40-50 percent could be genuine. There is a likelihood that the rest are dummy directors, who are not updating even their basic information such as phone numbers and email ids,” a senior government official told Moneycontrol.
The corporate affairs ministry has launched a mega KYC drive for company directors, in which they have to provide passport, PAN number and contact details such as personal phone number and email addresses by September 15.
This is part of the government’s larger strategy to clamp down on shell or paper companies that seek to operate outside regulatory boundaries. Many such companies are under the authorities’ lens for allegedly serving as conduits of undisclosed funds to evade taxes.
Company directors are required to update their KYC information annually, certified by a company secretary or chartered accountant, at the time of filing annual financial statements. This is a part of the government’s strategy to verify the credentials and cleanse the ecosystem by weeding out bogus directors.
“A director is a person who is getting licence to be on 20 companies (limit prescribed under the law). Why should we not know the bona fides of the person,” the official said, adding that the basic credentials of the individual definitely needs to be verified.
In FY18, the ministry had identified and removed the names of 2.26 lakh organisations from the registrar of companies (RoC) directory for remaining inactive for two years or more.
Separately, another 3.09 lakh directors on the board of companies who failed to file financial statements or annual returns for a continuous period of three financial years during 2013-14 to 2015-16 were disqualified.
Continuing the crackdown on shell companies, the ministry is likely to strike off around one lakh companies by mid-September out of the 2.25 lakh identified in the current financial year, the official said.
“In the second drive launched in this financial year, 60,000 companies have been weeded out of the system,” the official said.
The ongoing move is part of a drive to remove entities that do not contribute to an economic activity and are rather a burden on the system. The corporate affairs ministry is also culling companies’ data to see if they are involved tax evasion or money laundering.
“We are looking at nipping it in the bud. We are taking steps so that a shell company cannot exist,” the official said.
As a part of government’s clampdown on black money, the government has taken several steps including constitution of the Special Investigation Team on Black Money, enactment of the The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, Income Declaration Scheme, 2016, Benami Transactions (Prohibition) Amendment Act, 2016 and the demonetisation scheme.
A task force was also set up in February, 2017 by the Prime Minister’s Office under the joint chairmanship of the finance secretary Hasmukh Adhia and corporate affairs secretary Injeti Srinivas with a mandate to check the menace of companies indulging in illegal activities including facilitation of tax evasion.
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