400 Chartered Accountants Under Scanner For Flouting Norms To Incorporate Chinese Shell Companies

Around six Chinese enterprises involved in manufacturing, fintech, and telecommunications have been seized by the Income Tax authorities. As this scandal unveils, a total of 400 chartered accountants are now under the scanner for flouting norms to incorporate Chinese shell companies.

According to information obtained by The Hindu, the Central government has proposed disciplinary measures against 400 Chartered Accountants (CAs) and Company Secretaries (CSs) for their suspected involvement in the incorporation of Chinese shell firms in major cities while disobeying regulations.

Following the 2020 Galwan incident, in which 20 troops were killed during bloody battles with the Chinese People’s Liberation Army (PLA), the government took a number of actions against Chinese business entities.

Despite the fact that Chinese companies’ FDI has dried up over the past two years as a result of multiple regulatory initiatives by the government, trade between the two nations set a record $125 billion last year. According to data from the Department for Promotion of Industry and Internal Trade (DPIIT), FDI from China reached a high of $15,422 crore between April and June 2020 (counted from the year 2000) and a low of $12,622 crore in the first quarter of 2022.

According to a senior government official, the CAs and CSs who were the targets of disciplinary action assisted in the incorporation of numerous Chinese-owned or Chinese-run shell firms in major cities without sufficient adherence to regulations and laws. Following input from financial intelligence units over the previous two months, the Ministry of Corporate Affairs (MCA) recommended the measure.

According to a statement given to The Hindu by the Institute of Chartered Accountants of India (ICAI), a statutory body that oversees the practice of chartered accounting in the nation, the “Disciplinary directorate of ICAI is in receipt of complaints from office of various Registrar of Companies across the country against CA professionals for their involvement in relation to companies alleged to be linked with Chinese nationals.”

“The said complaints are being processed in terms of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007. Hence, guilt, as alleged, as well as the number of Chartered Accountants alleged to be involved, is yet to be ascertained/determined after conducting detailed investigation/inquiry, so, it is premature to comment upon the same,” the ICAI said (read below).

In order to increase accountability and speed up disciplinary proceedings against CAs and CSs by the appropriate institutes, the MCA modified the Chartered Accountants Act 1949, the Cost and Work Accountant Act 1959, and the Companies Secretary Act 1980 in April of this year.

About six Chinese enterprises involved in manufacturing, fintech, and telecommunications have been seized by the Income Tax authorities since October of last year on suspicion of under-invoicing and tax evasion.

On June 1, the MCA amended the Companies (Appointment and Qualification of Directors) Rules, 2014 to make it necessary for anyone from a nation that shares a border with India to obtain a security clearance from the Ministry of Home Affairs (MHA) before they can serve as a director or shareholder in an Indian company. The decision, according to the official, will have an effect on Chinese businesses that operate in India through subsidiaries established in other nations.

The DIPP announced a new rule on April 18, 2020, making prior government clearance required for FDI from nations that share a land border with India in an effort to stop opportunistic takeovers by Chinese enterprises of loss-making Indian firms.

Earlier, these applications would have been approved without the MHA’s approval because FDI is permitted in non-critical industries through the automatic method. For investments in crucial industries like defense, media, telecommunication, satellites, private security firms, civil aviation, mining, and any investments from Pakistan and Bangladesh, prior government approval or security clearance from the MHA is necessary.

For the thorough evaluation of security clearances for Chinese FDI proposals, an FDI Proposal Review Committee including the Union Home Secretary and Secretary DIPP as members was established in October 2020.

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