In a sweeping crackdown aimed at cleansing the country’s corporate sector, the Ministry of Corporate Affairs (MCA) has struck off a staggering 2.33 lakh dormant and potentially illicit entities over the past five years.
This unprecedented purge, revealed in a written response to an un-starred question in the Rajya Sabha by Minister of State for Corporate Affairs Harsh Malhotra, may by far be the most comprehensive clean-up of India’s corporate registry to date.
These numbers point to a government on a mission to root out shell companies — often suspected of facilitating tax evasion, money laundering and other economic offenses. While there is no statutory definition of “shell companies” under the Companies Act, the MCA’s focus has been on identifying and eliminating inactive firms that have failed to meet statutory compliance requirements for consecutive years.
Delhi and Maharashtra: Epicenters of Corporate Evasion?
Maharashtra and Delhi, the economic powerhouses of India, have emerged as the biggest contributors to this dubious list, with 36,856 and 35,637 companies, respectively, being struck off between 2019 and 2024. States like Uttar Pradesh (22,644), Karnataka (19,242) and Tamil Nadu (16,143) followed closely behind. This raises alarming questions about the prevalence of non-compliance and fraudulent activities even in the most developed corporate hubs of the country.
Smaller Union Territories like Ladakh and Lakshadweep reported negligible numbers, reflecting limited corporate presence. However, the sheer scale of the purge in larger States signals a systemic issue, that the government is racing to address.
A Sharp Rise in Inaction
The year-by-year breakdown paints a grim picture of rising non-compliance in India’s corporate landscape. FY22-23 marked the zenith of this clean-up effort, with 82,125 companies axed from the register. The sustained momentum, officials claim, reflects intensified regulatory vigilance following the pandemic, when shell companies were suspected of being conduits for financial irregularities, including fraudulent claims under government relief packages.
A Legal Loophole?
Despite the staggering numbers, the government has admitted a glaring gap: the absence of a legal definition for “shell companies”. Instead, regulatory action is guided by provisions under Section 455 and Section 248 of the Companies Act, targeting dormant or inactive firms. Companies that fail to commence business within a year of incorporation, or have not filed financial statements and returns for two consecutive years, are placed under the scanner.
Corporate Affairs Minister Malhotra explained that physical verification has been crucial in uncovering ghost firms that exist only on paper but may be used for dubious purposes. Such entities are often linked to tax evasion, benami transactions and money laundering.
Cleaning House
The MCA’s offensive against shell companies has been bolstered by close collaboration with investigative bodies like the Serious Fraud Investigation Office (SFIO). Leveraging advanced data analytics through the MCA-21 portal, authorities have struck off non-compliant entities with surgical precision. The framework also empowers Registrars of Companies (RoCs) to initiate action against firms that fail to declare themselves dormant or fulfill compliance mandates.
The process is part of a broader effort to ensure corporate governance, with the government positioning itself as a watchdog to restore trust in the business ecosystem, say industry observers.