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‘Fake address, intent to defraud’: Why India is cracking down on firms with Chinese directors

Registrar of Companies has lodged 39 FIRs in Mumbai alone against companies with foreign directors or shareholders. Officials are tight-lipped but complaints show common patterns.

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Mumbai: For more than a decade, a Mumbai-registered infrastructure company called Harbin Electric India existed without incident. But it is in trouble now, as are dozens of other firms with Chinese directors or shareholders.

Since the beginning of this year, the Registrar of Companies — a wing of the Union Ministry of Corporate Affairs (MCA) — has been filing FIRs against numerous such companies for a range of similar alleged infractions.

One case in point is Harbin Electric India Company Private Limited, which was registered in Mumbai as a private subsidiary of a Chinese company on 15 November 2011. It had one Chinese director on behalf of the parent company and a second Indian director.

More than 10 years later, the Mumbai office of the Registrar of Companies (RoC) has filed an FIR against its directors as well as the chartered accountant who helped set up the company.

The allegation is that the accused defrauded the RoC by establishing a company with a Chinese stakeholder by taking the help of an Indian director. It is also alleged that false documents were submitted to show the presence of an Indian office, although one does not exist.

In the FIR, the complainant, assistant registrar Anil Bhagure, said that at the time of the company’s registration, its address was shown at Vile Parle in Mumbai. “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 said in the FIR, accessed by ThePrint.

Bhagure told ThePrint he did not wish to comment, while an email to Harbin Electric seeking a response went unanswered.

The case of Harbin Electric, though, is not isolated. Several companies with foreign directors or shareholders — especially, if they happen to be Chinese nationals — are currently under the scanner of the Ministry of Corporate Affairs.

Regional RoC offices across the country have registered multiple police complaints against such companies.

There are common threads in the allegations levelled against such companies, including that they submitted false information to the RoC, that they were foreign-owned, or that they transferred shares to foreign nationals later without letting the RoC know.

In Mumbai alone, the RoC has registered 39 FIRs, of which ThePrint has accessed 15. Similar probes are also underway in other cities, including HyderabadAhmedabad, and Gurugram.

Ministry of Corporate Affairs secretary Rajesh Verma and director-general Manmohan Juneja both declined to comment when they were contacted by ThePrint. The matter is “sensitive”, an MCA official explained on condition of anonymity, and there is, therefore, a reluctance to speak about it.

A senior officer at the Mumbai Police’s Economic Offences Wing (EOW) told ThePrint that the investigation is at a very nascent stage and it would be “premature” to comment on it.

“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 ThePrint analysed the FIRs that it had access to, there seemed to be a pattern across cases.


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Secret tips, ‘criminal conspiracy’, no office at address

The FIRs that ThePrint went through had several commonalities. To begin with, the majority — 13 out of 15 — named Chinese directors or shareholders.

Secondly, the accused have been booked under Indian Penal Code (IPC) sections pertaining to punishment for criminal conspiracy, criminal breach of trust, cheating and dishonesty, and general intent to defraud.

The FIRs also invoke sections of the Companies Act, 2013, dealing with punishment for fraud and for making false statements.

When asked if these companies were used for money laundering, the police officer in the Economic Offences Wing said that it was too early to say.

The third aspect common to the FIRs is that the complainant, usually an assistant registrar, cites “secret and confidential information” received by his office as the basis of the complaint.

Finally, all complaints start with how a chartered accountant or company secretary registered a firm a few years ago at a given address. Sometimes, the firm is first registered with Indian directors, but somewhere down the line the ownership is transferred to Chinese nationals.

For instance, deputy registrar Alpesh Maniya filed a complaint regarding one Pipeguard Trading Private Limited, in which he named two chartered accountants. Maniya alleged that, according to “confidential information” received by his office, these chartered accountants would help foreign nationals establish companies 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.

This is how, he alleged, the two chartered accountants helped establish Pipeguard Trading in 2016 with two Indian directors who had 5,000 shares each as of 30 September 2016. The filings for September 2017, however, show 5,000 shares in the names of two persons who the complainant suspects to be relatives of the two chartered accountants.

The FIR further adds that the September 2019 filing shows one of the two original Indian directors and a third person having transferred 5,000 shares each to two Chinese nationals.

The third person who transferred the shares was never shown as a shareholder in all of the company’s paperwork in the first place, the FIR says.

“This shows the annual returns being filed are wrong and fraudulent,” the FIR said, adding the two Chinese directors had a category of visa in India under which they could not be employed in the country or start a business here.

Maniya did not respond to ThePrint’s calls. An email to Pipeguard Trading’s registered email address also went unanswered.

Like for Pipeguard Trading, in all the FIRs that ThePrint analysed, complainants have alleged that the offices of the companies don’t exist at the registered addresses.

When asked about the complaints naming various CAs, a spokesperson of the public relations department of the Institute of Chartered Accountants of India (ICAI), a professional accounting body under the Ministry of Corporate Affairs, said the matter was being dealt with by the disciplinary directorate.

“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.

ThePrint also sent queries via e-mail to the Institute of Company Secretaries of India, but is yet to receive a reply. This article will be updated once a response is received.

Companies registered with foreign nationals

In some other cases, such as that of Harbin Electric, the company was registered several years ago with foreign nationals as directors, and officials in the RoC had facilitated the registration then.

For example, on 8 April 2022, Deputy Registrar Rupa Sutar registered a complaint involving officials of Ress Power Private Limited, saying a company secretary got the firm registered in September 2019 with two directors and shareholders from Sichuan, China.

The FIR adds that the company did not exist at the registered address, which means the company secretary gave fraudulent information to the RoC at the time of registration.

“It has become evident that the company was registered for a firm in China and Chinese nationals,” Sutar said in the FIR. She, however, told ThePrint, she did not want to comment as she was not authorised to speak to the media.

In a few stray cases, foreign nationals of countries other than China are also in the dock. For instance, one of the complaints involves one Alibaba.com India Ecommerce Private Limited, which was incorporated in 2010 with two Indian directors and shareholders.

According to the FIR, the company’s filings as of 31 March 2011 indicated that Alibaba.com Singapore Ecommerce Private Limited had 9,900 shares and Singapore Ecommerce Private Limited had 100 shares.

“However, there were no documents filed to show the actual transfer of shares,” the complainant, deputy registrar Anil Yadav, says in the FIR.

Yadav did not respond to ThePrint’s calls and there was no response to an email sent to the company under the scanner.

In another case, Bhagure filed a complaint regarding Informa Markets India Private Limited, naming three people who allegedly registered the company with Indian directors in 2005 and then transferred its ownership to Cyprus-based Storm Cliff Limited. An email sent to Informa Markets went unanswered.

‘Got job through Naukri.com, resigned after police cases’

The multiple FIRs registered name chartered accountants, company secretaries, foreign nationals who have become directors and shareholders in Indian firms, as well as the Indian directors in the companies.

One of the Indian directors named as an accused told ThePrint that he was part of six companies where Chinese nationals were majority owners. However, after the police cases, he decided to step down and resigned 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, said, requesting anonymity.

He said he signed up expecting a monthly salary from the companies that he was associated with. Of the six, at least three did not have any operations as they were formed just before the lockdown and business could not take off. As a result, he did not get any pay 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 said, emphasising that the companies did exist and were not just created on paper. He added that the foreign shareholders and directors barely corresponded with him through the lockdown, and have been incommunicado since the FIRs were filed.

(Edited by Asavari Singh)


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