Kolkata's Lalbazar is home to at least 300 shell companies

This article was first published on Business Standard on Feb 20, 2017. Business Standard is republishing this article in light of Sebi imposing trading restrictions on suspected shell companies

Lalbazar, one of the oldest areas of Kolkata and once the home of merchant princes of the East India Company, is now the residence to shell companies.

Still famous for colonial-era commodities such as tea and dying goods and services such as typewriters and wedding bands, the bustling area in central Kolkata is almost synonymous with the city police headquarters, housed in a red brick building at 18 Lalbazar Street. 

Right across the street is the dilapidated Mercantile Buildings at 9/12. In its recent crackdown on shell companies, the income tax (I-T) department has identified this address as the home of 90 per cent — or 300 — of such entities in the country. 

The building, on a corner plot, with gothic arches and still impressive façade, came up in 1918. During the construction of the iconic Howrah Bridge over the Hoogly, from 1935 to 1943, it was used as a warehouse for iron beams imported from England. 

It was also a hub of the cycle trade. As a continuation, the ground floor has several wholesale shops selling cycle parts. 

Now, this building is only famous for fires and I-T raids.

The rust-coated beams of Mercantile Buildings precariously hold nearly 470 offices, with an average carpet area of 300 sq ft each, spread over five blocks, three stories and mezzanine floors. A huge courtyard at the centre of the building provides an open space, rare in contemporary commercial construction.

 “The building is centrally located but rents are cheap. In most cases, the occupants are sub-tenants. Young chartered accountants can get offices for as low as Rs 3,000-4,000 per month. Many have seen their businesses flourish after starting out here,” said an old-timer.

Another improvisation that has helped transform the once airy rooms into beehives of commercial use are the high ceilings that make it very easy to construct mezzanine floors.

 “The height of the ceilings is 19 ft, as compared to current heights of 8 ft. So it’s easy to make a mezzanine floor. One can easily get an office space of 600 sq ft,” said a chartered accountant (CA) who works there. 

While the average rent in the city is Rs 50 per sq ft, in this building one can get it is for as low as Rs 5-8 per sq ft. Rates have not appreciated much in 50 years. Fire hazards, a precarious structure and erratic supply of basic amenities such as water and electricity come with the low rent. About six years earlier, a major fire broke out at Mercantile Buildings. Kolkata Municipal Corporation disconnected the electricity supply. The perseverant tenants worked out of generators for close to six months. Finally, they pooled funds of around Rs 25 lakh to lay new electricity lines. Another reason for concentration of CAs in the building is non-requirement of trade licences. Because of the frequent fires, it is almost impossible to obtain a trade licence for a business in the building. CAs do not need a trade licence. 

Mercantile Buildings belonged to a family named Nawans. They sold it to a business firm owned by one Gopal Sanei, a director of Sanei Motors and several construction and fertiliser companies in Kolkata. Sanei could not be contacted for comments. 

Despite multiple hazards, the tenants of Mercantile have a firm belief in its lucky charm. “Whoever has come to this building has returned rich. We believe the wealth of the goddess resides in the building,” said a former office occupant.

“Opening companies on paper is an old business here. It is the failure of the government that these thrive so long. There are 1.4 million companies registered in registrar of companies and not even 700,000 file returns,” said a CA who has worked out of the building for the past 30 years.

At least 70 per cent people involved in opening shell companies are not even CAs but only entry operators.