MISUSE OF DORMANT COMPANIES IN INDIA: A CRITICAL LEGAL ANALYSIS OF REGULATORY GAPS AND JUDICIAL OVERSIGHT (2013–2025)
AUTHOR – TEJAS VERMA, STUDENT AT CHRIST (DEEMED TO BE UNIVERSITY)
BEST CITATION – TEJAS VERMA, MISUSE OF DORMANT COMPANIES IN INDIA: A CRITICAL LEGAL ANALYSIS OF REGULATORY GAPS AND JUDICIAL OVERSIGHT (2013–2025), INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 6 (2) OF 2026, PG. 416-428, APIS – 3920 – 0001 & ISSN – 2583-2344. DOI – https://doi.org/10.65393/UIMZ4721
ABSTRACT
The regulatory framework of dormant companies as stated in Section 455 of the Companies Act, [1]2013 contains a structural weakness that encourages corporate malfeasance, even though it is intended to ensure that inactive businesses have the freedom to operate. The paper addresses systemic frailties inherent in the dormant system of the company regime, in the form of the statutory framework, enforcement mechanisms and judicial interpretation, by showing how the advanced players use the loopholes in the regulations to engage in illegal financial transactions. This work shows that the information asymmetry created by the self-declaration model underlying Section 455, although it lessens the compliance burden on legitimate dormant entities, is critically damaging, allowing shell companies to operate under the cloak of regulatory dormancy. Over 233,000 companies were struck off by the Ministry of Corporate Affairs between 2019 and 2025, but such reactive enforcement steps cannot curb the already existing networks of layered corporate forms that help to launder money, evade taxation and conceal beneficial ownership. The dichotomy of active and dormant firms is not a sufficient way of describing the range of corporate inactivity, as it is possible that corporations can be dormant entities that act as passive intermediaries in sophisticated financial plans. Cases in courts, especially those of the Supreme Court in McDowell and Co. Ltd. v. Commercial Tax Officer and Vodafone International Holdings v. The Union of India, create a set of conflicting doctrinal premises authorizing substance- over form analysis at the same time as evidentiary standards are high in veiling the corporate veil. This conflict of doctrine, together with the formalism of procedure taken by the National Company Law Tribunal and National Company Law Appellate Tribunal, contributes to the inefficiency of regulation in identifying and preventing the difference between an active and a dormant company abuse.
The study suggests comprehensive changes such as the obligatory non-government audit of dormant status applications, graduated dormant status, centralized corporate intelligence systems where inter-agency data could be integrated in real-time, and more deterrence with commensurate punishment. The recommendations are also to change the reactive and procedure-oriented dormant regime of companies in India to a proactive, intelligence-based regime that keeps the business legitimate flexibility and provides regulatory accountability and market integrity.
Keywords Dormant Companies, Section 455 (Companies Act, 2013), Shell Layering, Beneficial Ownership, Regulatory Framework, Corporate Governance
[1] Companies Act, No. 18 of 2013, § 455 (India).