Companies (Significant Beneficial Owners) Amendment Rules, 2019: Analysis

Companies (Significant Beneficial Owners) Amendment Rules, 2019
Notified as on 08.02.2019

IMPORTANT POINTS TO BE NOTED!

1. DEFINITIONS

1. “control” means control as defined in clause (27) of section 2 of the Act

[Section 2(27) of Companies Act, 2013 specifies: “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]

2. “form” means the form specified in Annexure to these rules;

3. “majority stake” means;-

(i) holding more than one-half of the equity share capital in the body corporate; or

(ii) holding more than one-half of the voting rights in the body corporate; or

(iii) having the right to receive or participate in more than one-half of the distributable dividend or any other distribution by the body corporate

4. “partnership entity” means a partnership firm registered under the Indian Partnership Act,7932 (9 of 1,932) or a limited liability partnership registered under the Limited Liability Partnership Act, 2008 (6 of 2009);

5. “reporting company” means a company as defined in clause (20) of section 2 of the Act, required to comply with the requirements of section 90 of the Act;

6. “section” means a section of the Act;

7. “significant beneficial owner”in relation to a reporting company means an individual referred to in sub-section (1) of section 90, who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, namely:-

i. holds indirectly, or together with any direct holdings, not less than ten per cent. of the shares;

ii. holds indirectly, or together with any direct holdings, not less than ten per cent. of the voting rights in the shares;

iii. has right to receive or participate in not less than ten per cent. of the total distributable dividend, or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings;

iv. has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct-holdings alone:

[Explanation: The indirect holding will be considered at the first place to identify the SBO. If the individual is only having direct holding in the Reporting Company (whether less than or more than 10%), he shall not be considered as SBO. But if the individual is holding indirectly along with direct holding (holding not less than 10%), then he shall be considered as SBO.]

[NOTE: Here, in the term: “Through one or more persons”, the term person has not been specified, therefore, the definition of the Person can be adopted from General Clauses Act.

As per General Clauses Act: “person” shall include any company or association or body of individuals, whether incorporated or not;]

2. EXPLANATIONS CLARIFYING THE DEFINITION

S No	Case	Conditions to be followed
1	Individual shall not be considered to be a significant beneficial owner	If individual does not hold any right or entitlement indirectly under sub-clauses (i), (ii) or (iii)
2	Direct holding of an individual shall be ascertained in the reporting company	if he satisfies following conditions: (i) the shares in the reporting company representing such right or entitlement are held in the name of the individual; (ii) the individual holds or acquires a beneficial interest in the share of the reporting company under sub-section (2) of section 89, and has made a declaration in this regard to the reporting company.
3	Indirect holding of an individual shall be ascertained in the reporting company in the following manner:
(i)	Where member of the reporting company is a body corporate (whether incorporated or registered in India or abroad), other than a limited liability partnership,	the individual (a) holds majority stake in that member; or (b) holds majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that member;
(ii)	member of the reporting company is a Hindu Undivided Family (HUF) (through karta)	the individual is the karta of the HUF
(iii)	where the member of the reporting company is a partnership entity (through itself or a partner)	the individual,- (a) is a partner; or (b) holds majority stake in the body corporate which is a partner of the partnership entity; or (c) holds majority stake in the ultimate holding company of the body corporate which is a partner of the partnership entity.
(iv)	where the member of the reporting company is a trust (through trustee)	the individual,- (a) is a trustee in case of a discretionary trust or a charitable trust; (b) is a beneficiary in case of a specific trust; (c) is the author or settlor in case of a revocable trust
(v)	where the member of the reporting company is (a) a pooled investment vehicle; or (b) 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	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.
(vi)	Where the member of a reporting company is, (i) a pooled investment vehicle; or (ii) an entity controlled by the pooled investment vehicle, based in a jurisdiction which does not fulfil the requirements referred to in clause (v) mentioned above	the provisions of clause (i) or clause (ii) or clause (iii) or clause (iv), as the case may be, shall apply.
(vii)	individual, or individuals, acting through any person or trust, as the case may be, shall be deemed to be ‘acting together’.	if any individual, or individuals acting through any person (as defined in General Clauses Act) or trust, act with a common intent or purpose of exercising any rights or entitlements, or exercising control or significant influence, over a reporting company, pursuant to an agreement or understanding, formal or informal,
(viii)	For the purposes of this clause, the instruments in the form of global depository receipts, compulsorily convertible preference shares or compulsorily convertible debentures shall be treated as ‘shares’.

3. DUTY OF THE REPORTING COMPANY

(1) Every reporting company shall take necessary steps to find out if there is any individual who is a significant beneficial owner, and if so, identify him and cause such individual to make a declaration in Form No. BEN-1.

(2) every reporting company shall in all cases where its member (other than an individual), holds not less than ten per cent of its;

(a) shares, or

(b) voting rights, or

(c) right to receive or participate in the dividend or any other distribution payable in a financial year, give notice to such member, seeking information in accordance with subsection (5) of section 90, in Form No. BEN-4.

4. DECLARATION OF SIGNIFICANT BENEFICIAL OWNERSHIP

(1) On the date of commencement of the Companies (Significant Beneficial Owners) Amendment Rules, 2019, every individual who is a significant beneficial owner in a reporting company, shall file a declaration in Form No. BEN-1 to the reporting company within ninety days from such commencement.

(2) Every individual, who subsequently becomes a significant beneficial owner, or where his significant beneficial ownership undergoes any change shall file a declaration in Form No. BEN-1 to the reporting company, within thirty days of acquiring such significant beneficial ownership or any change therein.

Explanation.- Where an individual becomes a significant beneficial owner, or where his significant beneficial ownership undergoes any change, within ninety days of the commencement of the Companies (Significant Beneficial Owners) Amendment Rules, 2019, it shall be deemed that such individual became the significant beneficial owner or any change therein happened on the date of expiry of ninety days from the date of commencement of said rules, and the period of thirty days for filing will be reckoned accordingly.

5. RETURN OF SIGNIFICANT BENEFICIAL OWNERS

Upon receipt of declaration under rule 3, the reporting company shall file a return in Form No. BEN-2 with the Registrar in respect of such declaration, within a period of thirty days from the date of receipt of such declaration by it, along with the fees as prescribed in Companies (Registration offices and fees) Rules, 2014.

[Form BEN-2 has been notified vide the Companies (Significant Beneficial Owners) second Amendment Rules, 2019 dated 1st July 2019, therefore the time limit for filing the BEN-2 form would be 30 days from the date of deployment of BEN-2 e-form on the MCA-21 portal i.e. 31st July, 2019, failing which, the form shall be filed with additional fee.]

6. APPLICATION TO THE TRIBUNAL

The reporting company shall apply to the Tribunal,

(i) where any person fails to give the information required by the notice in Form No. BEN-4, within the time specified therein; or

(ii) where the information given is not satisfactory,

in accordance with sub-section (7) of section 90, for order directing that the shares in question be subject to restrictions, including

(a) restrictions on the transfer of interest attached to the shares in question;

(b) suspension of the right to receive dividend or any other distribution in relation to the shares in question;

(c) suspension of voting rights in relation to the shares in question;

(d) any other restriction on all or any of the rights attached with the shares in question

7. NON-APPLICABILITY

These rules shall not be made applicable to the extent the share of the reporting company is held by,

(a) the authority constituted under sub-section (5) of section 125 of the Act;

(b) its holding reporting company:

Provided that the details of such holding reporting company shall be reported in Form No. BEN-2.

(c) the Central Government, State Government or any local Authority;

(d) (i) a reporting company, or

(ii) a body corporate, or

(iii) an entity,

controlled by the Central Government or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments;

(e) Securities and Exchange Board of India registered Investment Vehicles such as mutual funds, alternative investment funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (lnVITs) regulated by the Securities and Exchange Board of India,

(f) lnvestment Vehicles regulated by Reserve Bank of India, or Insurance Regulatory and Development Authority of India, or Pension Fund Regulatory and Development Authority.

8. DETAILS OF FORMS:

1. BEN-1:
Declaration by the beneficial owner who holds or acquires significant beneficial ownership in shares
(To be given by Significant Beneficial Owner to the Reporting Company)

2. BEN-2:
Return to Registrar in respect of declaration under section 90
(To be filed by the Reporting Company to RoC)

3. BEN-3:
Register of Beneficial Owners holding significant beneficial interest
(To be maintained by the Reporting Company)

4. BEN-4:
Notice of Significant Beneficial Ownership given by the Company to the respective person
(To be given by the Reporting Company to the Respective SBO)