400 CA & CS are being investigated for violating regulations by forming Chinese shell Corporations

The central government has recommended disciplinary action against 400 chartered accountants and company secretaries (CS) accused of breaking laws and being linked to Chinese shell businesses in urban areas.

Following the Galwan incident in 2020, in which 20 troops were killed in violent battles with the Chinese People’s Liberation Army, the government has implemented a variety of restrictions against Chinese businesses (PLA).

Based on inputs received from the Financial Intelligence Agency in the last two months, the Ministry of Corporate Affairs (MCA) has recommended this action.

Despite the fact that Chinese companies‘ FDI has dried up in the last two years as a result of the government’s numerous regulatory measures, trade between the two nations reached a new high of $125 billion last year. According to data from the Department for Promotion of Industry and Internal Trade (DPIIT), FDI from China reached Rs.15,422 crore in April-June 2020, but dropped to Rs.12,622 crore in the first quarter of 2022.

According to a senior government official, the CAs and CSs facing disciplinary action assisted in the formation of a large number of Chinese-owned or Chinese-run shell firms in key cities without following the norms and laws.

Tightening the Grip on Chinese Companies

In the last two years, the government has taken a number of moves to tighten its hold on Chinese companies’ operations.

April 2020

The Foreign Direct Investment Policy has been amended to require government approval for investments from nations that share a land border with India.

August 2020

Customs restrictions were issued to prevent the dumping of low-cost Chinese goods in India by misrepresenting the country of origin.

May 2022

Before providing securities to any entity from a country with which it shares a land border, corporations must acquire government clearance under the MCA.

June 2022

If an individual from a country with a land border wishes to become a director or shareholder in an Indian firm, the MCA requires a security clearance.

The Institute of Chartered Accountants of India is a statutory body that oversees the Chartered Accountancy profession in India. The Disciplinary Directorate has received reports from numerous registrar offices of Chartered Accountants in cooperation with Chinese enterprises, according to the ICAI. Further inquiry is being done based on these complaints under the CA (Procedure to Inquire into Professional and Other Misconduct and Cases) Rules, 2007. Everything will be revealed only after a thorough inquiry into the incident, and it is too early to make any comments at this moment.