Shell Companies and Section 248 of the Companies Act, 2013

Context: Based on non-filing of financial statements consecutively for two years or more, companies were identified and after following due process of law, more than 3.8 lakh shell companies were struck off during the last three years.


  • The term “shell company” is not defined under the Companies Act.
  • It normally refers to a company without active business operation or significant assets, which in some cases are used for illegal purpose such as tax evasion, money laundering, obscuring ownership, benami properties etc.
  • Section 248 of the Companies Act, 2013 is the crux, and at present, one of the few provisions in the legislation that seeks to curtail shell companies.
  • Section 248 vests the power with the Registrar to remove the name of any such company from the Registrar of Companies (RoC) where:
  • A company has failed to commence business within one year of incorporation or
  • Where the company has not been carrying on any business or operation for a period of the preceding two financial years and has not applied for dormant company status.
  • The Companies (Amendment) Act, 2019 supplements the provisions of Section 248.
  • A new Section 10A has been inserted which stipulates that a declaration is to be filed by a director within a period of a 180 (hundred and eighty) days from the date of incorporation of the company in the manner prescribed with the Registrar, affirming that every subscriber to the Memorandum has paid the value of the shares agreed to be paid by him on the date of making such declaration.
  • In a separate written reply, the Minister of State in Finance Ministry said that under Section 182 of the Companies Act, companies, other than government companies and companies less than three years old, are allowed directly or indirectly to contribute to any political party with the approval of their boards of directors.
  • Such companies shall have to disclose in its profit and loss account the total amount contributed by them during the financial year to which the account relates and the name of the party is not required to be disclosed. Therefore, political party-wise data is not maintained.

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