About 4.5 lakh directors are likely to face disqualification from various companies by the year-end in one of the country’s biggest operations against shell firms, government sources said.
Until September, over 3 lakh directors had been disqualified for flouting the provisions of the Companies Act, the Minister of Corporate Affairs told Parliament on Monday. They are facing action for non-filing of annual returns by their companies, mostly shell firms, for three straight years. Shell or on-paper firms with no real operations are typically used to launder funds.
Initial investigations into the account details of the disqualified directors suggest that `4,500 crore was deposited and withdrawn after the government announced demonetisation on 8 November 2016. Most accounts had zero balance earlier. Some firms had as many as 100 to 300 accounts in their names. A company was even found to have 2,134 accounts associated with it. These accounts have been frozen by the government as further investigations are going on.
The action against the erring directors and shell companies is going to be a continuous process from now on. “The objective is to instill respect for law,” pointed out an official dealing with the matter. The credentials of a person who has a track record of remaining non-compliant also raises doubts at the corporate governance level, he added.
Meanwhile, 50 persons have approached the government as well as courts seeking reversal of the order. “We have got representations from some directors claiming innocence. There may be cases having valid reason for filing late returns,” said a Corporate Affairs Ministry official. The ministry will be dealing with it on a case by case basis.
Some directors said they have not been provided opportunity of hearing and no notice was served on them. Others claim to have been disqualified wrongly from other companies.
Many privately held companies have also sought relief saying the disqualification has been made effective retrospectively.
The decision on relief will be taken case by case.