Crackdown on India Shell Companies Unearths $1 Billion Cash

India is intensifying its crackdown on dubious companies.

Crackdown on India Shell Companies Unearths $1 Billion Cash
Office towers are seen through glass cracked by the cold. (Photographer: Andrey Rudakov/Bloomberg)

(Bloomberg) -- India is intensifying its crackdown on dubious companies after it unearthed over $1 billion in suspicious cash deposits as part of its investigations into corruption and efforts to boost foreign investment, a minister said.

While the government has already revoked permissions for over 200,000 companies and restricted their bank accounts, it is now working on limiting property transfers to trace any further generation of black money, said P.P. Chaudhary, junior minister for corporate affairs, in an interview on Oct. 18 in New Delhi.

The ministry is probing deposits of over $1 billion made by around 20,000 companies during the cash ban last year, while its Serious Fraud Investigation Office is investigating 1,505 companies for allegedly violating the Companies Act. It is examining another 809 listed companies, found untraceable by SEBI, to check their status, existence of their offices and directors, the minister said.

After winning the 2014 election in a landslide on the promise of tackling corruption and improving the ease of doing business, Prime Minister Narendra Modi has been taking measures to prevent money laundering, counterfeiting, hoarding and tax evasion. In November last year, he withdrew 86 percent of currency on circulation aiming to crackdown on unaccounted wealth and put an end to India’s vast shadow economy. In an Independence Day speech on Aug. 15, Modi claimed the move had unearthed over 300,000 shell companies.

Crackdown on India Shell Companies Unearths $1 Billion Cash

"Our purpose is to increase compliance so that investors’ confidence increases in Indian companies," Chaudhary said. "This will also attract foreign investors who would be sure that the companies they are investing in are genuine. We will have to curb shell companies if we want to increase confidence of investors in India."

Following Modi’s speech, the ministry of corporate affairs struck off the names of 217,239 companies for failing to comply with regulatory requirements and disqualified directors on these companies’ boards from assuming directorship at other firms.

"The final list of disqualified directors may touch up to 450,000," Chaudhary said. "The companies which deposited money during demonetization are being investigated using artificial intelligence".

Breather Needed

While the government’s move will boost investors’ confidence in India, authorities should ensure that companies and directors with genuine cases are given a breather, according to Abhishek Goenka, a Bangalore-based corporate tax leader at PwC India.

"Currently the directors who have been disqualified have no recourse available to them," Goenka said over the phone.

The ministry is conducting massive data mining exercise to trail ultimate beneficiaries of these companies. Using data analytics and artificial intelligence, the information gathered will be used to take action against the offenders, the minister said. 

It’s also developing a state-of-the-art early warning system using artificial intelligence that will throw up red flags and provide information in case a company’s financial health deteriorates or if it’s transactions are suspect. 

"In the absence of technology we can be reactive but not proactive," the minister said. "To be proactive it is necessary that we develop artificial intelligence."

To contact the reporter on this story: Shruti Srivastava in New Delhi at

To contact the editors responsible for this story: Ruth Pollard at, Unni Krishnan

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