In ASSAM CO. INDIA LTD V. UNION OF INDIA, the Guwahati High Court has held that that the term ‘shell company’ is not defined in any statute, and as such an order branding any company as a shell company, without serving notice or hearing, violates the principles of natural justice.
The court further declared that Parliamentary Standing Committee on Finance had suggested that the term ‘Shell Company’ be defined under the Companies Act, 2013. It was also noted that the committee was in the view that all the Shell Companies may not have fraudulent intention. Therefore, the expression ‘Shell Company’ was suggested to be defined as having fraudulent intent as one of the characteristic features of such a company and that being a paper company and not having any business operations per se is no offence: a corporate entity may be set up in such a fashion with the objective of carrying out the corporate activities in future and that whether a company is fraudulent should be decided from its characteristics.
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