New Delhi, April 21, 2018

P P Chaudhary said the ministry had received a report from the Institute of Chartered Accountants of India (ICAI) on systemic issues that led to the PNB fraud

The government is intensifying its drive against shell companies. After taking action against 226,000 shell companies last year, the Ministry of Corporate Affairs has now zeroed in on another 225,000 suspected shell companies. The ministry has sent notices to these companies, asking whether they had filed statutory financial returns.

Minister of State for Corporate Affairs P P Chaudhary told Business Standard that companies had been given a chance to respond to the notices.

On the Rs 139-billion Punjab National Bank fraud, Chaudhary said the Serious Fraud Investigation Office (SFIO) was probing 107 companies and seven limited liability partnerships (LLPs) belonging to Nirav Modi’s Firestar Diamond Group and Mehul Choksi’s Gitanjali group.

Though the minister refused to divulge details, most of these entities are suspected to be shell companies with no real businesses. Sources said these entities were used by Nirav and Choksi — the prime accused in the fraud case — to divert the money received from banks.

Chaudhary said the ministry had received a report from the Institute of Chartered Accountants of India (ICAI) on systemic issues that led to the PNB fraud. “We are currently examining it,” he said.

Nirav and Choksi face charges of defrauding PNB in connivance with a few bank employees.

Chaudhary refused to buy the argument that his ministry had gone slow on investigating shell companies after it froze accounts of 226,000 entities. He said the ministry had identified around 225,000 more companies against whom notices had been issued in the second round.

Under the Companies Act, 2013, companies can be struck off the register if they do not file financial returns for a continuous period of three years.

Chaudhary said of the 226,000 companies, bank details of 168,000 had been revealed. Of those, 73,000 companies deposited Rs 240 billion in banks post-demonetisation. Bank details of 58,000 companies have not been revealed yet. Sixty-eight shell firms were being probed, including 19 by the SFIO, the minister said.

Chaudhary also talked about a panel’s recommendations on the Insolvency and Bankruptcy Code.

[The Business Standard]