Banks likely to freeze accounts of shell firms

Government suspects that many of these bank accounts were used to launder money, especially after the demonetisation in November 2016.

Illustration: Dominic Xavier/Rediff.com

The Prime Minister’s Office (PMO) has called for expeditious freezing of bank accounts belonging to shell companies after some of them were found to be active, after around 350,000 inactive companies were struck off the official records since 2016-17.

Nripendra Misra, principal secretary to the prime minister, wrote a letter to top bureaucrats on June 23 asking them to convene a meeting to ensure finalisation of “standard operating procedures” for freezing of all bank accounts of shell companies within two weeks, in a bid to crackdown on money laundering.

Following this, Finance Secretary S C Garg will chair a meeting on Thursday, to be attended by Corporate Affairs Secretary Injeti Srinivas, Financial Services Secretary Rajiv Kumar, Revenue Secretary A B Pandey, CBDT chairman Pramod Chandra Mody, Indian Banks Association (IBA) chairman Sunil Mehta, among others to discuss the matter.

“There was a lot of coordination and compliance issues created by banks. As a result, many of these bank accounts are still operational which is a cause of concern,” said a senior government official, requesting anonymity.

According to sources, one government-owned bank has lent more than Rs 280 crore to a company after it was deregistered.

Such transactions are likely to have occurred among other public sector banks as well, but the government still doesn’t have detailed data on the dealings.

Government suspects that many of these bank accounts were used to launder money, especially after the demonetisation in November 2016.

In 2017, 6,000 companies had been caught in alleged money laundering cases following the note ban.

The companies, which have had their registration cancelled, had a total balance of Rs 22 crore on November 8, 2016, the day demonetisation was announced.

They subsequently deposited Rs 4,573 crore and withdrew Rs 4,552 crore.

Sources said the meeting on Thursday "is being convened to ensure finalisation of the SOP in two weeks for restricting or freezing the operations of bank accounts of companies, which have been struck off from the Registrar of Companies under Section 248 of the Companies Act, 2013.”

In a drive carried out under the supervision of the Ministry of Corporate Affairs, the Registrars of Companies (ROCs) identified and removed the names of 1986 companies in 2016-17 and 226,166 companies in 2017-18, which had not filed their financial statements or annual returns for a continuous period of two or more financial years, from the register of companies under Section 248 of the Companies Act, 2013.

Further, in 2018-19, 112,797 companies were struck-off from the Registrar of Companies.

In August 2017, following a Corporate Affairs Ministry’s diktat, the IBA had told banks to ensure no companies which have been struck off from official records do not continue business or operations through their bank accounts.

More than a dozen banks had shared the detailed information about a thousands of accounts held by a small number of companies.

Bank transactions from such accounts were only allowed for purpose of paying off liabilities or other such obligations.

In fact, the IBA had told banks to put in a system to ensure that such transactions take place “only after the bank officials or designated bank officials are satisfied that the nature of transaction” is for this purpose.

Banks were also directed to “keep specific watch for unusual transactions and beneficiaries thereof” and report such matters to the income tax authorities or the Enforcement Directorate.