The long wait may finally be over. The legal lacuna on shell companies may soon get filled with the CA Institute, which is the regulator of audit profession, now looking to define a “Shell Company” for the purpose of effective regulatory action against such firms.

Currently, the concept of a “shell company” is not defined under the company law. In the absence of a definition, both Corporate Affairs Ministry and SEBI have been unable to take action against shell companies although they have been able to identify them.

A list of about 330 companies–identified as shell companies by the Government– has been toing and froing between Corporate Affairs Ministry and SEBI with both contending that it is for the other to take the necessary action.

Simply put, a shell company is a non-trading company that is used as a vehicle for financial manoeuvres. It is kept dormant without active business operations and used illegitimately to disguise business ownership from law enforcement agencies or public.

Naveen N.D.Gupta, Vice President, Institute of Chartered Accountants of India (ICAI) told Business Line that ICAI’s Central Council will now finalise a definition for “shell company”.

“The matter (proposal to define Shell Company) is now an agenda item of our Council”, Gupta said.

Meanwhile, sources said that CA Institute has urged the Corporate Affairs Ministry to bring amendments to Companies Auditors Report Order (CARO) so as to incorporate the concept of “shell companies” in such order.

The suggestion is to amend CARO to require a statutory auditor to certify if the company concerned is a shell company or not, they said.

Having a definition for “Shell Company” and amending CARO is expected to empower the Government and regulatory agencies to take the necessary action against shell companies, sources added.

The Modi-led Government has over the last twelve months been on a tear as regards action against black money, de-registering as many as 2.24 lakh companies and disqualifying about 3.09 lakh directors.

Source: http://www.thehindubusinessline.com/news/ca-institute-working-on-definition-for-shell-company/article9984595.ece