Interpretation of “Shell Company” as per Law

The expression shell company has not been defined under any law in India. Therefore, there is no statutory definition of shell company, be it in fiscal statutes or in penal statues.

The expression shell company was taken matter by the Gauhati High Court in the matter of Assam Company India Ltd. and Ors. vs. The Union of India & Ors. The Court observed that the expression shell company has not been defined under any law in India. Therefore, there is no statutory definition of shell company, be it in fiscal statutes or in penal statues. Neither the Companies Act, 1956 nor the Companies Act, 2013 defines the expression shell company. In the interim order passed on 12.07.2018 in this matter itself, the High Court observed that in the Concise Oxford English Dictionary, 11th Revised Edition, shell company has been defined as a non-trading company used as a vehicle for various financial manoeuvres. In popular parlance, a shell company is understood as having only a nominal existence; it exists only on paper without having any office and employee. Just like a shell which has a thick outer covering but is hollow inside, a shell company is a corporate entity without having active business operations or significant assets. It may be used as a deliberate financial arrangement providing service as a tool or vehicle of others without itself having any significant assets or operations i.e., acting as a front. Popularly shell companies are identified as companies which are used for tax evasion or money laundering, i.e., channelizing crime tainted money or proceeds of crime into the formal economy. But just being a paper company and not having any assets or business operations per se is no offence. A corporate entity may be set up in such a fashion with the objective of carrying out corporate activities in future. That would not make it an illegal entity.

(Link : https://services.ecourts.gov.in/ecourtindiaHC/cases/display_pdf.php?filename=rC8SUFuyEFsvB5V61cXUrDLmQG%2FH29OvKqD%2Bv5NlncqaFGbavINKXqg4Er4KRInt&caseno=WP(C)/2572/2018&cCode=1&appFlag=)