Key Analysis of the Provisions of Companies (Significant Beneficial Owners) Rules, 2018
1. Introduction :Amendments in Section 89 & 90 was one of the major amendments brought in by the Companies (Amendment) Act, 2017. Later on, MCA on June 14, 2018 through notification, has enforced the amended provisions of Section 90 of the Companies Act, 2013 and has introduced the Companies (Significant Beneficial Owners) Rules, 2018 (“SBO Rules”).
And after considering the practical challenges in these Rules amended the provisions of SBO Rules through its notification dated February 8, 2019.
2. Meaning of SBO: [Section 90(1)]
Every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests, of not less than twenty-five per cent. or such other percentage as may be prescribed, in shares of a company or the right to exercise, or the actual exercising of significant influence or control as defined in clause (27) of section 2, over the company
3. Section 2(27) defines Control:
“control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;
4. However the SBO Rules redefines the SBO[through the power conferred under section 90 (1)]:
“Significant Beneficial Owner” means an individual referred to in sub-section (1) of section 90 (holding ultimate beneficial interest of not less than ten per cent.) read with sub-section [10] of section 89, but whose name is not entered in the register of members of a company as the holder of such shares, and the term ‘significant beneficial ownership’ shall be construed accordingly.
5. Section 89(10) states that:
beneficial interest in a share includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to—
(i) exercise or cause to be exercised any or all of the rights attached to such share; or
(ii) receive or participate in any dividend or other distribution in respect of such share.
6. After making a combine reading of Section 89 (10) and definition of SBO as prescribed in SBO Rules, SBO means a persons who acting alone or together with one or more persons or trust possess one or more of the following rights:
i. Holds directly or indirectly not less than 10% of the shares in the Company;
ii. Holds directly or indirectly not less than 10% of the voting rights;
iii. has the right to receive/ participate in 10% of total distributed divided in a F.Y.
iv. has the right to exercise/ actually exercise the significant influence or control
Key emphasis is given to the indirect right or entitlement that the person posses; and if the person has only Direct right or entitlement then he is not a SBO.
7. An individual shall be considered to hold the Direct Right or entitlement in the reporting Company if:
i. The shares are held in the name of the individual; or
ii. If the individual is holding beneficial interest in the shares and that individual has made the declaration u/s 89 to the Company
8. An individual shall be considered to hold an indirect right or entitlement in the reporting Company if he satisfies any of the following conditions:
a. Where member of the reporting Company is Body Corporate (in-coporated in India or outside India)[other than LLP and the individual-
i. holds majority stake in that member;
ii. holds majority stake in that ultimate holding Company of that member
b. where the member of the reporting company is a Hindu Undivided Family (HUF) (through karta), and the individual is the karta of the HUF;
c.where the member of the reporting company is a partnership entity (through itself or a partner), and the individual,-
i. is a partner;or
ii. holds majority stake in the body corporate which is a partner of the partnership entity;or
iii. holds majority stake in the ultimate holding company of the body corporate which is a partner of the partnership entity.
d. where the member of the reporting company is a trust (through trustee), and the individual,-
a) is a trustee in case of a discretionary trust or a charitable trust;
b) a beneficiary in case of specific trust;
c) is a author or settler in case of a revocable trust e. where the member of the reporting company is,-
(i) a pooled investment vehicle; or
(ii)an entity controlled by the pooled investment vehicle, based in member State of the Financial Action Task Force on Money Laundering and the regulator of the securities market in such member State is a member of the International Organization of Securities Commissions, and the individual in relation to the pooled investment vehicle,-
(A) is a general partner; or
(B) is an investment manager; or
(C) is a Chief Executive Officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity.
9. The instruments in the form of global depository receipts, compulsorily convertible preference shares or compulsorily convertible debentures shall be treated as ‘shares’.
10. Majority Stake means:
i. holds more than 50% equity share capital in the body corporate;
ii. Holds more than 50% of the voting rights in the body corporate; or
iii. Having the right to receive or participate in more than 50% of the distributable dividend or other distributions by the body corporate
11. Duty of the Reporting Company [Rule 2A]:
1. Every reporting company shall take necessary steps to find out if there is any individual who is a significant beneficial owner, as defined in clause (h) of rule 2, in relation to that reporting company, and if so, identify him and cause such individual to make a declaration in Form No. BEN-1.
2. Every reporting Company shall give notice to the members (other than an individual) holds not less than 10 % of its- i. shares; ii. voting rights; iii. right to receive or participate in the dividend or any other distribution payable in a financial year, seeking information u/s 90 (5) in Form BEN-4.
12. Initial Disclosure:
Individual who is an SBO under these Rules are required to file a declaration in Form BEN-1 to the reporting Company within 90 days from the date of notification of these Rules [i.e.May 9, 2019]
13. Continuous Disclosure:
Every individual who subsequently becomes the individual or any change in the declaration made earlier may file the declaration in Form BEN-1 within 30 days of such change.
14. Filing of the Return of SBO:
The declaration received by the Company needs to be filed with the Registrar in Form BEN-2, within a period of 30 days from the receipt of such declaration.
15. Register of SBO:
Every Company shall maintain the register in Form BEN-3.
The register shall be open for inspection during business hours at such reasonable time but not less than 2 hrs, on every working day as the Board may decide, by any member of the Company upon payment of the fees as may be specified by the Company but not exceeding Rs. 50 for each inspection.
Author Bio
Sir: What happens if the Company refuse to accept the declaration form BEN-01 sent through Speed Post returned unserved? How to establish the claim? Whether Limitation Act 1963 will bar the remedy for the shares issued in 1996? Kindly clarify,Regards,RAM