Detecting Shell Companies: MCA Seeks Location Photo of Company’s Registered Office in Form INC 22A
The ministry of corporate affairs (MCA) in its drive to tackle  ‘letter box companies’ have unveiled the Companies (Incorporation) Amendment Rules, 2019 (the Amendment Rules) vide its notification dated 21 February  2019, thereby amending the provisions of Companies (Incorporation) Rules, 2014 (the Rules). 
The government has launched a sustained campaign in the last four years against black money and has taken several bold steps including constitution of the special investigation team on black money, enactment of the ‘Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’, income declaration scheme, 2016, Benami Transactions (Prohibition) Amendment Act, 2016 and the demonetization scheme. One such measure was the setting up of a task force in February 2017 by the prime minister’s office under the joint chairmanship of the revenue secretary and secretary, MCA. 
The task force was mandated to check in a systematic way, through a coordinated multi-agency approach, the menace of companies indulging in illegal activities including facilitation of tax evasion and those commonly referred to as ‘shell companies’. Its members included the department of financial services, the Central board of direct taxes (CBDT), Central Board of Excise and Customs (CBEC), Central Bureau of Investigation (CBI), Enforcement Directorate (ED), Serious Fraud Investigation Office (SFIO), Financial Intelligence Unit – India (FIU-IND), the Reserve Bank of India (RBI), the Securities Exchange Board of India (SEBI), the Director General of Goods and Services Tax Intelligence (DG GSTI) and the Central Economic Intelligence Bureau (DG-CEIB).
In a drive carried out under the supervision of the MCA in FY2017-18 the registrars of companies (ROCs) identified and removed from the register of companies under Section 248 of the Companies Act, 2013 the names of 2,26, 166 companies, which had not filed their financial statements or annual returns for a continuous period of two or more financial years. As many as 3,09,619 directors were also disqualified under Section 164(2)(a) read with Section 167(1) of the Companies Act, 2013 for non-filing of financial statements or annual returns for a continuous period of immediately preceding three financial years (2013-14, 2014-15 & 2015-16).
The introduction of the amendment rules are part of the crackdown on shell companies. The new e-form INC 22A-ACTIVE introduced through the amendment rules will record the address of the registered office along with a photo of the registered office with the latitude and longitude of the place where registered office is situated. Basically the e-form enables geo-tagging, i.e attaching data of the exact location of the office, it will allow the online return filing system to alert government officials wherever it detects that far too many companies are registered in the same premises, a trend noticed in past investigations into shell companies.
The detailed article discusses changes brought in through the amendment rules by the MCA.
Analysis of the Amendment Rules
The analysis of the amendments brought in by the amendment rules has been reproduced hereunder:
I. Applicability:
The rules shall come into force from 25 February 2019
II. Active Company Tagging Identities and Verification (ACTIVE)
III. Consequences of Non-filing 
a. If the company fails to file e-form INC 22A-ACTIVE within the prescribe period of time it shall be marked as "ACTlVE -non-compliant" on or after 26 April 2019 and shall be liable for action under sub-section (9) of section 12 of the Act.
b. The registrar shall not accept the following forms filed by the company, unless the default is made good:
i. SH-07 (change in authorized capital)
ii. PAS-03 (change in paid-up capital)
iii. DIR-12 (changes in director except cessation)
iv. INC-22 (change in registered office)
v. INC-28 (amalgamation, de-merger)
IV. What happens if the company files the e-form after the due date?
Where a company files e-Form INC 22A-ACTIVE before 25 April 2019 the fee payable shall be NIL, and on or after 26 April 2019, the company shall be marked as “Active Compliant”, on payment of fees of ten thousand rupees.
V. Exemption
a. The company which has not filed its due financial statements under section 137 or due annual returns under section 92 or both with the registrar of companies shall be restricted from filing e-form-ACTIVE, unless such company is under management dispute and the registrar has recorded the same on the register.
b. Companies which have been struck off or are under the process of being struck off as recorded in the register.
c. Companies under liquidation process or amalgamated or dissolved as recorded in the register.
VI. Glimpse of the e-Form INC-22A ACTIVE
The e-Form INC 22A-ACTIVE will comprise the following mandatory details:
  • Address of the registered office (photo of the registered office also showing at least one director(s)/ key management personnel (KMP) who has affixed his/her digital signature to this form is mandatory) with latitude and longitude of the  place where the registered office is situated
  • One time password (OTP) for verification will be sent on companies’ registered e-mail id
  • The director identification number (DINs) shall be in approved condition and it shall not be invalid on ground of non-filing of form DIR-3 KYC nor disqualified u/s 164(2).
  • Details of KMPs of the company
  • Service Request Number (SRN) of e-form AOC-4/AOC-4 XBRL and MGT-7 filed for FY17-18.
  • Mandatory attachment:
    o Photograph of registered office showing external building and inside building also, showing at least one director/KMP who has affixed his/her DSC to this form.
The e-Form INC 22A-ACTIVE will record details pertaining to the address of the registered office which would comprise a photo of the registered office along with latitude and longitude. This will help to locate whether or not such a place exists, to avoid the use of bogus address by shell companies. The government expects that its efforts to clean up the registry will create a transparent and compliant corporate ecosystem in India, promote the cause of ‘ease of doing business’ and enhance the trust of the public. This move of MCA will act as an early warning system to detect mushrooming of shell companies. 
(Nitin Kumar Bohara and Burhanuddin Dohadwala work at Vinod Kothari & Co)
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    The Inter-connected World of Indian Defence Business
    Sudhir Choudhrie, India's biggest arms agent and lobbyist, who is being investigated by the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED), has made enough through his deals to have reportedly entered the real estate business.
    Investigating agencies tracking his activities say he is constructing a network of cinema halls, lifestyle malls and luxury hotels. 
    These investigations are also providing telltale clues into how closely networked the world of defence contracts is—and that there are neither permanent friends nor permanent enemies among those in the defence business. 
    For instance, Alpha Design Technologies, a Bengaluru-based company with links to Mr Choudhrie, which was acquired by Adani Defence Systems and Technologies in December for Rs400 crore cash, has links to Russian and Israeli players and is promoted by Vasaka Promoters and Developers. Adani Defence Systems and Technologies is a wholly-owned unit of Adani Enterprises of the Gautam Adani-led group. 
    Alpha Design, which has got industrial licences to manufacture defence equipment in India, had the following shareholders on 31 March 2018: Vasaka Promoters and Developers (3.21 crore shares and 85.8% holding), Col HS Shankar (retd), who manages the company (no shares) and One Earth Capital Ltd of Mauritius, a foreign institutional investor or FII (0.53 crore shares, or 14.15% holding).
    On 1 December 2018, Alpha Design Technologies allotted equity shares to the following entities: Elara India Opportunities Fund Ltd, an FII (0.03 crore shares, 0.79% holding for Rs8.24 crore), Astraea Fund Ltd, Cayman Islands (0.01 crore shares, 0.26% holding for Rs4.52 crore) and Cogent Global PCC, Mauritius (0.01 crore shares, 0.26% holding for Rs3.21 crore). 
    Following this, there was a change in shareholding status. Vasaka Promoters and Developers held 84.68% in Alpha Design and Technologies, One Earth Capital Ltd of Mauritius held 13.98% and Col Shankar (retd) held 0.03% while FIIs together held 1.31% of the company. 
    There are two interesting aspects of these deals—one, the transfer of 13.98% equity stake of Alpha Design from three companies linked to Mr Choudhrie and his associates to One Earth Capital, Mauritius and, two, the holding of Vasaka Promoters and Developers: the first because of the interlocking shareholding and, in the second case, the family relationships involved. 
    Vasaka Promoters is a special purpose vehicle (SPV) promoted by the Murugappa Group, Karvy Group and Amarjit Singh Bakshi and his company, Safdarjang Estates Pvt Ltd. The family connections build on from here. 
    Mr Bakshi is chairman and managing director of Bakshi group, which is involved in the automotive, infrastructure, defence, real estate and hospitality industries. Safdarjang Estates is a Bakshi group company and has on its board Amrita Bakshi, wife of Amarjit Singh Bakshi. 
    Continental Defence Solutions Pvt Ltd, another Bakshi Group company, has been granted industrial licences for defence manufacturing by the government's department of industrial policy and promotion (DIPP). Mr Bakshi's daughter, Simrin is married to Bhanu Choudhrie, Sudhir Choudhrie's son. 
    Now, to cut a long story short, all the companies mentioned above—the Bakshi Group companies, the Murugappa Group, the Karvy Group, Vasaka Promoters, One Earth Capital, Mauritius and Elara India Opportunities Fund Ltd -- have links with Alpha Design Technologies Pvt Ltd, a Sudhir Choudhrie front company, which has now been bought over by Adani Defence Systems and Technologies.
    The rationale for the acquisition is obvious. It pitchforks the Adani Defence Systems into the big league where it can match the Tatas, Reliance Defence and the Mahindras. 
    Mr Choudhrie, whose name figures among the biggest account-holders in the infamous Panama Papers, has been one of the beneficiaries of the offset programme in defence. 
    The Panama Papers Link
    On 17 October 2016, six months after the Panama Papers and days after the Indian Express reported on several offshore firms linked to London-based arms agent Mr Choudhrie and his son Bhanu, a Mossack Fonseca employee had raised the red flag, new data from the law firm revealed.

    According to the report, "The 'compliance note' pointed out that both father and son were arrested in 2014, as part of a SFO probe in London for allegedly helping Rolls-Royce pay bribe to secure contracts in China and Indonesia. In India, it noted, the Ministry of Defence also ordered a CBI inquiry into the purchase of aero engines by Hindustan Aeronautics Ltd (HAL) from Rolls-Royce."
    On 27 October 2016, two entities from British Virgin Islands (BVI) - Anterna Ltd and Belinea Services Ltd, associated with the Choudhries were served a 90-day notice by Mossack Fonseca to change their registered agent.

    "The latest data shows that Mossack Fonseca's UK office informed its BVI arm that Bhanu had resigned as director of Anterna on 27 January 2016, after all 50,000 shares were transferred in November 2015 from a Seychelles entity - Protype Services Inc - to Sumant Kapur, the son of Sudhir Choudhrie's uncle BK Kapur," the report from Indian Express says.
    Rolls-Royce Connection
    In February 2014, Mr Choudhrie was detained by the UK Serious Fraud Office (SFO) in a bribery investigation into Rolls-Royce Holdings. According to an investigation by BBC and The Guardian, Rolls-Royce had paid the money to companies linked to Mr Choudhrie, a known arms dealer.

    A report from BBC said, "The joint investigation has also found evidence of a suspicious payment that was made in cash. It involves Mr Choudhrie's son, Bhanu, who accompanied an arms executive called Peter Ginger on a trip to Switzerland in 2007. During the trip, Mr Ginger made a cash payment amounting to hundreds of thousands of pounds into a secret bank account. The account was opened in the name of 'Portsmouth' and bank documents seen by Panorama later showed a balance of more than 1 million Swiss francs. Mr Ginger was a key negotiator on the sale of Hawk aircraft to the Indian government. All of the planes had Rolls-Royce engines and the deal was worth around 400 million pounds to the company."

    Both Mr Choudhrie and his son Bhanu were arrested in February 2014.
    Mr Choudhrie denied any wrongdoing, was never charged and was released on bail without conditions. The Sunday Times reported that the bail was completely lifted in July 2014.
    The company, Europe's largest maker of commercial jet engines, agreed in January 2017 to pay about 670 million pound to settle US and UK investigations into allegations its representatives bribed foreign officials, says a report from UK Telegraph.
    This report from October 2018 also stated that Bhanu Choudhrie was taking legal action against his wife Simrin to prevent her disclosing 'pillow talk' about his part in a Rolls-Royce corruption inquiry. Simrin Choudhrie had filed for divorce in May 217, but was living with her husband till November that year. The couple is going through divorce proceedings.
    In UK, Mr Choudhrie is regarded as a long-term backer of the Liberal Democrats and has supported the party financially since 2004, making over £1.5million in donations, in personal capacity and from his company.

    In 2015, Liberal Democrat leader Tim Farron had appointed Mr Choudhrie as his adviser on India, a role involving helping the party develop its relationship with the British-Indian community and providing advice on Britain's foreign and business relationships with India.
    According to a report from Deccan Chrinicle, Israel-based international defense electronics company Elbit Systems Ltd gave its first megabuck order for export of high technology jammer power amplifier to Alpha Design Technologies during the the Aero India 2019. These amplifiers would also be sold to Indian armed forces later.
    Bezhalel Machlis, President & CEO, ELBIT Systems, said the company selected Alpha Design Technologies as their technology and production partner for manufacture of new generation jammer power amplifiers to meet requirements worldwide and would ensure that large export orders accrue to Indian manufacturers.
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    Ralph Rau

    2 years ago

    Moral of the story.

    If you have a "dirty" business and are being tracked by ED and CBI simply sell it to Mr A or Mr A and it will be instantly sanitised and all will be forgiven.

    Meenal Mamdani

    2 years ago

    This is so murky, wheels within wheels.
    What a life!! A person cannot trust his own wife! Whew!
    Looks like money is more important than anything else in life for these folks.

    My question is this - does this hold for the defense industry only or is it the modus operandi for all large trans-national deals?

    SEBI Declares Commodity Broking Arms of Motilal Oswal and Indian Infoline 'Not Fit and Proper'
    Market regulator Securities and Exchange Board of India (SEBI) has declared the commodity broking arms of Motilal Oswal and India Infoline (IIFL) as not "fit and proper", as part of the action taken in the NSEL case.
    SEBI is probing as many as 300 brokers for violation of rules colluding with the National Spot Exchange Ltd (NSEL) to defraud investors. In fact, the regulator has named brokerage firms in a first information report (FIR). 
    What this meant was that NSEL did not maintain sufficient underlying stock on trades it allowed even as brokers sold lucrative contracts to investors. 
    This builds defaults and resulted in the exchange denying payments worth Rs 5,600 crore in 2013. 
    "In view of the seriousness of the matter, facts and circumstances of the case, the conduct of the noticee in its functioning as a commodity broker is questionable and has certainly eroded its general reputation, record of fairness, honesty and integrity and has therefore affected its status as a 'fit and proper person' to be an intermediary in the securities market," the designated authorities said in the report submitted to SEBI. 
    In an order uploaded on its website on February 22, SEBI said that the brokers had a close association with NSEL and allowed themselves to "become a channel".
    "Thus the noticee is not a fit and proper person to be granted registration/to operate as a commodity derivatives broker," the order said. 
    SEBI has also ordered both Motilal Oswal and IIFL to transfer securities of all their clients and allow withdrawal within 45 days of the order. 
    Failing this, "the noticee shall transfer its balance clients with their corresponding securities and funds to another person, holding a valid certificate of registration to carry on such activity, within a further period of 30 days", the order said. 
    Also such a person should not be related to the entities being declared not fit and proper person. 
    While the SEBI order deals with commodity trading arms of the two brokerage firms, under regulators unified licence regime, most firms have moved their commodity operations under the same unit that operates stock broking. It needs to be seen what it would mean for the unified broking business of the Motilal Oswal and IIFL. 
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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