How a CA Ran a ₹750 Crore Scam Using Shell Firms
Fake loan app scam cases are on the rise, but this ₹750 crore scandal allegedly operated by a chartered accountant has shocked even seasoned investigators. The accused reportedly floated over 100 shell firms, routed funds from Chinese fintech players, and bypassed tax compliance laws — all under the radar of regulators.
Here’s a breakdown of how the fraud unfolded, the tax angles involved, and how such shell networks exploit loopholes in Indian law.
The Modus Operandi: Shell Firms, Dummy Directors & Chinese Funds
According to the Enforcement Directorate (ED) and Economic Offences Wing (EOW):
- Over 100 shell companies were incorporated using dummy directors with fake Aadhaar/PAN.
Legal and Tax Loopholes That Enabled the Scam
1. Shell Companies Under MCA’s Radar
Shell entities are those with no real business activity but used for money laundering, tax evasion, or fake invoicing. The MCA had earlier struck off over 2.4 lakh such companies under Section 248 of the Companies Act, 2013.
2. Violation of PAN-Aadhaar KYC Norms
As per CBDT Circular No. 7/2023, non-compliance with PAN-Aadhaar linking leads to deactivation.
3. Income Tax Act – Section 68
This section deals with unexplained cash credits. The shell firms showed crores as unsecured loans or share capital without proof of genuineness, making the amounts liable to 60% tax under Section 115BBE plus penalty.
4. GST Implications
As per Section 122 of CGST Act, this attracts ₹10,000 or 100% of tax evaded, whichever is higher.
How Indian CAs Can Be Misused in Scams
- Digital signatures were misused to file fake returns.
ICAI has disciplinary powers under the Chartered Accountants Act, 1949, and such cases invite debarment and prosecution.
Expert Tip: Watch Out for These Red Flags
✔️ CA firms charging extremely low fees for incorporation + GST
✔️ Same phone/email used for multiple firms
✔️ No physical office or books of account
✔️ Refusal to share tax login credentials
✔️ High-volume bank activity with no real invoices
If your firm unknowingly deals with such vendors, you may lose your ITC or face Section 68 scrutiny.
What Can the Government Do?
- Stronger API-based verification of directors during incorporation (link Aadhaar biometrics to DIN)
- Integration of Income Tax, GST, and ROC data using AI
- Make GST registration stricter for high-risk sectors like fintech and lending apps
- Expand real-time monitoring using Financial Intelligence Unit (FIU-IND) alerts
Summary
Fake loan app scam exposed a ₹750 crore laundering network run by a CA using shell firms and Chinese links. It highlights urgent KYC, GST, and tax compliance gaps.
FAQs
Q1. What is a shell company under Indian law?
A shell company is typically inactive with no real business, used to evade tax or launder money. The MCA defines and acts against such firms under Section 248 of the Companies Act.
Q2. How can a business check if its vendor is fake?
Verify the vendor’s GST registration, PAN status, and ITR filing history. Look for red flags like common directors, no physical office, or lack of invoicing.
Q3. Can a CA be held liable in such scams?
Yes. Under the Chartered Accountants Act, 1949, and PMLA, CAs can be prosecuted for abetting or facilitating financial crimes.
Final Word: Stay Compliant, Stay Safe
If you’re running a startup or small business, don’t fall for shortcuts that promise tax savings or faster registrations without transparency. A single fake invoice or vendor can land you in serious trouble.
Let Efiletax help you set up and run your compliance cleanly — with proper documentation, due diligence, and expert support for GST, Income Tax, and MCA matters.