In feb 2005, Simplified Exit Scheme (SES) was started by the Government to enable the corporate houses to end the existence of defunct companies that are not only been running but also public with stocks listed on the stock exchange. The companies that had carried out no activity since their incorporation and wanted to exit could do so with a mere declaration by the applicant instead of a magesterial affidavit.
Shell companies are a major tool in the hands of industrialists and corporate bosses who use it to embezzle funds and also earn money through various ways. What ways you would ask?
Well, for one, the shareholder books of these companies are not closed for any month. So they are always open. This can be useful if someone wants to “manage” the black money and convert it into white. Through various transactions the companies can show how one person bought the shares at a low price and sold when the price was high. The stock price, btw, in such companies keeps fluctuating a lot! So, as the stock is “sold” at the high price and profit made.. it is a long term capital gains on stocks – and so the tax incurred is ZERO! Problem solved.
The problem is so huge that of all the registered companies in the country, almost 25% reportedly are such companies.
Raju also used such companies – 200 of them – to take out funds.
Raju has been found to have floated over 200 small companies though the objective of those companies is not known.
Of course, it now seems he also used “fake employees” – probably now it seems 10,000 of the 53,000 employees were not even real. Their salary accounts were used to siphon funds for Raju’s other activities – real estate.
It is important that something serious is done of this problem of shell/defunct companies that have no activity.. no product.. no sales.. just an address and some directors .. and are still listed on the stock exchanges! Until such institutionalized mess is taken care of, Transparency and clean corporate governance is not even possible in India.
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