The investigation, overseen by the Department of Corporate Affairs, will determine whether the same individuals serve on multiple boards, which would indicate shell companies with no real economic activity in India.
“There have been instances where individuals have sat on the boards of several companies,” a senior government official told ET, explaining the reason for the review.
“The idea is to examine the authenticity of the operations of the units and the role of the directors.”
Such shell companies are being de-registered to prevent them from doing business in India.
The ministry is in the process of identifying and deregistering shell companies that have been involved in predatory lending by Chinese lending apps without regulatory oversight. The government is investigating entities and individuals involved in providing these lending apps.
This investigation has been extended to all Chinese companies due to concerns that similar abuses could take place in other sectors. Several authorities are now involved in investigating Chinese companies.
The examination involves checking the details of Chinese nationals holding key positions in companies in India to determine whether they serve as directors in more than one company. This will allow authorities to identify the real ones from bogus companies, the official quoted above said.
The Interior Ministry earlier this year identified 348 mobile applications, including those developed in China, that were collecting information in unauthorized ways and transmitting it to servers outside the country.
In April 2020, New Delhi amended the Foreign Direct Investment (FDI) policy, making a prior government nod mandatory for foreign investment from countries sharing a land border with India. These changes implied that all FDI from Bangladesh, China, Pakistan, Nepal, Myanmar, Bhutan and Afghanistan had to be approved by the government, even if the relevant sector was on the automatic approval route. The measure was seen as largely targeting Chinese investment.
An inter-ministerial committee was set up to consider proposals affecting foreign direct investment from China. Such an investment also required a security clearance by the Ministry of the Interior. A similar condition has been introduced for companies applying for a procurement contract, be it for goods or services.
