The person is said to be the “mastermind” behind such shell companies.
On the evening of September 10th, 2022, the Serious Fraud Investigation Office (SFIO) arrested a person who is allegedly the mastermind behind a chain of Chinese shell companies that were carrying out their operations in India.
All this was done from a remote place in the state of Bihar while the person was trying to cross the Indian border via land routes.
A firm called Jilian Consultants India Private Limited, a subsidiary owned by Jilian Hong Kong Limited, had its Bangalore and Gurgaon offices searched and had a seizure operation done on September 8th. Another company that was also searched was Husys Consulting Ltd., a Hyderabad based firm.
An investigation was carried out by SFIO into 32 shell companies other than Jilian Consultants with Chinese links in India. The person arrested, Mr. Dortse, has been identified as a board member of the firm and has claimed to be a resident of Himachal Pradesh.
So far, investigations have suggested that these shell companies could have been involved in financial crimes that could prove to be harmful to the financial security of the country, stated the minister.
“Mr. Dortse is a board member of Jillian India Ltd and has been the mastermind of the whole racket of incorporating a large number of shell companies with Chinese links in India and providing dummy directors on their boards,” the ministry stated.
With the evidence collected during the search operations, it was clear that Jilian India Ltd. paid dummy directors in various shell companies because boxes full of digital signatures of dummy directors and company seals were recovered.
Chinese instant messaging apps were used to form communication between the Indian employees and their Chinese links. Husys Ltd was found to have a pact with Jilian Hong Kong Ltd. and was found acting on the behalf of Jilian India Ltd.
Earlier this week, the finance and corporate affairs minister of India, Nirmala Sitharaman, directed a crackdown on illegal loan apps. The Corporate Affairs Ministry was given a task of identifying and deregistering shell companies to avoid financial damage.
The Reserve Bank of India (RBI) is also looking into the dormant non-banking finance companies, also known as NBFCs, and has been asked to cancel their licenses to prevent misuse by such app operators.
Sitharaman has asked all ministries and agencies to take all the required actions to reduce and avoid the operations carried out by illegal loan apps.
These apps generally target the low-income sections of society as they are vulnerable, giving them very high interest rates and then using the methods of blackmailing and criminal intimidation to get the amount loaned back.
The corporate affairs ministry made a statement that one Chinese national and Mr. Dortse are the two directors at Jilian Consultants Private Limited. Mr. Dortse fled from Delhi NCR to a remote place in Bihar and was trying to escape the country via road, for which a special team from SFIO was dispatched there.
Mr. Dortse was produced before the jurisdictional court.
What are dormant companies?
These companies do not engage in illegal activities or fraudulent transactions.
What are shell companies?
A company that has no business activity but has financial assets is called a Shell company. These companies do not hire employees, generate revenue, or create any products. Their main function is to store money and be involved in financial transactions. Such companies are used in illegal activities, i.e. money laundering.
How do Shell companies work?
Shell companies hide the owners’ identities. Anonymously set up, these companies engage in businesses and deals pertaining to finance without even revealing who they are.
A shell corporation can do the following:
- Open bank accounts and move funds.
- Engage in financial transactions.
- Buy real estate.
- Own copyrights and collect royalties.
If a company is found guilty of operating as a shell company, then such a company and all its directors shall be liable to prosecution under the Companies Act, 2013, wherein the name of the company will be struck off from the register.
Shell companies are created in a tax haven, a country that has no or quite low tax imposition on businesses and laws against revealing banking information. With this, businesses can easily access foreign markets and reap the benefits of low taxes.