The RoC has lodged 39 FIRs in Mumbai alone. Other cities, including Hyderabad, Ahmedabad, and Gurugram, are conducting similar investigations. Here is the reason why India is cracking down on firms with Chinese directors.
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Harbin Electric India, a Mumbai-based infrastructure company, has been operating without issue for over a decade. However, it, like dozens of other companies with Chinese directors or shareholders, is now in jeopardy.
The Registrar of Companies, a division of the Union Ministry of Corporate Affairs (MCA), has been issuing FIRs against countless such companies for a variety of similar alleged breaches since the start of this year, reports The Print.
Harbin Electric India Limited Private Limited, for example, was established in Mumbai on November 15, 2011 as a private branch of a Chinese company. On behalf of the parent corporation, it had one Chinese director and a second Indian director.
After more than a decade, the Mumbai office of the Registrar of Companies (RoC) has lodged a FIR against the company’s directors and the chartered accountant who assisted in its formation.
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The accused is alleged of defrauding the RoC by forming a corporation with a Chinese investor with the assistance of an Indian director. False paperwork were also allegedly presented to represent the existence of an Indian office, which does not exist.
According to the FIR, the complainant, assistant registrar Anil Bhagure, the company’s address was listed as Vile Parle in Mumbai at the time of its registration. “But, when we went to the registered office of the firm, we found that the company does not exist at the given address… The company was registered despite it not being in existence. So, they have defrauded the Registrar of Companies ,” Bhagure alleged in the FIR, which the media was able to access.
Harbin Electric, on the other hand, is not an isolated case. The Ministry of Corporate Affairs is actively investigating several corporations with foreign directors or shareholders, particularly if they are Chinese nationals.
Multiple police charges have been filed against similar companies by various RoC offices across the country.
Allegations against such companies have a common thread, including that they provided misleading information to the RoC, that they were foreign-owned, or that they subsequently transferred shares to foreign nationals without informing the RoC.
The RoC has lodged 39 FIRs in Mumbai alone. Other cities, including Hyderabad, Ahmedabad, and Gurugram, are conducting similar investigations.
According to an MCA official who spoke on the condition of anonymity, the topic is “sensitive,” and there is a hesitation to discuss it.
The probe is still in its early stages, according to a senior officer with the Mumbai Police’s Economic Offences Wing (EOW), and commenting on it would be “premature.”
“So far, 39 FIRs have been registered in Mumbai and we have asked the RoC for more information about these companies,” he said.
However, when the media examined the FIRs it had access to, it noticed a trend in the cases.
Secret tips, ‘criminal conspiracy’, no office at address
Journalists found a few things in common among the FIRs he looked at. To start with, the bulk of the directors or shareholders — 13 out of 15 — were Chinese.
Second, the defendants have been charged under sections of the Indian Penal Code (IPC) that deal with criminal conspiracy, criminal breach of trust, cheating and dishonesty, and general intent to defraud.
Sections of the Companies Act, 2013, relating with fraud and making false statements are also cited in the FIRs.
When questioned if these firms were used for money laundering, an officer from the Economic Offenses Wing stated it was too early to tell.
The third feature identical to all FIRs is that the complainant, generally an assistant registrar, bases his accusation on “secret and confidential information” acquired by his office.
Finally, all concerns stem from how a chartered accountant or company secretary formed a business at a specific address a few years ago. The company may be registered with Indian directors at first, but ownership is eventually transferred to Chinese citizens.
Deputy registrar Alpesh Maniya, for example, filed a case against Pipeguard Trading Private Limited, naming two chartered accountants as defendants. According to “confidential information” acquired by Maniya’s office, these chartered accountants would assist foreign individuals in setting up businesses in India.
“They first register companies with Indian directors, after which they transfer shares in the name of foreign nationals and then transfer the company over to them altogether,” he said in the FIR.
He said that this is how the two chartered accountants assisted in the formation of Pipeguard Trading in 2016 with two Indian directors holding 5,000 shares each as of September 30, 2016. The September 2017 filings, on the other hand, reveal 5,000 shares in the names of two people who the complainant believes are relatives of the two chartered accountants.
According to the FIR, one of the original two Indian directors and a third person each transferred 5,000 shares to two Chinese nationals in September 2019.
According to the FIR, the third person who transferred the shares wasn’t ever listed as a shareholder in any of the company’s papers.
“This shows the annual returns being filed are wrong and fraudulent,” the FIR stated, adding that the two Chinese directors had a visa category in India that prevented them from working or starting a business.
Complainants have claimed that the companies’ offices do not exist at the listed locations in all of the FIRs, including Pipeguard Trading.
A representative for the Institute of Chartered Accountants of India (ICAI), a professional accounting group under the Ministry of Corporate Affairs, said the issue was being handled by the disciplinary directorate when questioned about the allegations identifying numerous CAs.
“The said complaints [against CAs involved in cases involving Chinese nationals] 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, [can] be ascertained/determined only after conducting detailed investigation/inquiry, so, it is premature to comment upon the same,” the spokesperson said in an e-mail.
Companies registered with foreign nationals
In some situations, such as Harbin Electric, the firm was registered many years ago with foreign nationals as directors, and officials from the RoC aided the registration at the time.
For example, on April 8, 2022, Deputy Registrar Rupa Sutar filed a complaint alleging that a company secretary created Ress Power Private Limited in September 2019 with two directors and stockholders from Sichuan, China.
The firm did not operate at the registered address, according to the FIR, implying that the company secretary provided false information to the RoC at the time of registration.
In the FIR, Sutar stated, “It has become evident that the company was registered for a firm in China and Chinese nationals.”
Foreign nationals from nations other than China have also been accused in a few instances. One of the allegations, for example, is about a company called Alibaba.com India Ecommerce Private Limited, which was founded in 2010 and has two Indian directors and owners.
According to the FIR, as of March 31, 2011, Alibaba.com Singapore Ecommerce Private Limited held 9,900 shares and Singapore Ecommerce Private Limited had 100 shares, according to the company’s filings.
The complainant, deputy registrar Anil Yadav, claims in the FIR that “however, there were no documents filed to show the actual transfer of shares.”
In another case, Bhagure lodged a complaint against three people for purportedly registering Informa Markets India Private Limited with Indian directors in 2005 and then transferring control to Storm Cliff Limited in Cyprus.
‘Got job through Naukri.com, resigned after police cases’
Chartered accountants, company secretaries, foreign nationals who became directors and shareholders in Indian corporations, as well as Indian directors, are all named in the many FIRs.
One of the Indian directors mentioned as an accused was a part of six companies with Chinese nationals as primary proprietors. However, following the police investigations, he chose to quit from all of them this week.
“I got associated with them in 2019. The company I was working with shut its office in Mumbai and I was in search of a job. I created a profile on Naukri.com and a chartered accountant got in touch with me saying there are some companies where foreign nationals need Indians on board for compliance reasons. I took it up,” the former director, who usually works in accounting, stated, requesting to remain anonymous.
He claimed that when he signed up, he expected a monthly salary from the businesses with whom he was affiliated. At least three of the six had no operations because they were founded just before the lockdown and were unable to get going. As a consequence, he received no compensation from them.
“The other companies had some operations in 2019-20 and I was getting about Rs 3,500 a month or so from each,” he claimed, emphasizing that the businesses were real and not simply on paper. He went on to say that during the lockdown, the foreign shareholders and directors seldom spoke with him, and that they have remained incommunicado since the FIRs were registered.