Significant Beneficial Owner- Form BEN-1 to BEN-4 Application

Companies (Significant Beneficial Owner) Amendment Rules, 2019- an Overview:

MCA through notification dated 8^th Feb, 2019, notified: Form: BEN-1, BEN-2, BEN-3, BEN-4

PURPOSE:

Main purpose of Form – BEN 2 is to identify the real owner of the Company.

DEFINED:

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

2. MAJORITY STAKE means;-

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

♦ holding more than one-half of the voting rights in the body corporate; or

♦  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, 1932 or a limited liability partnership registered under the Limited Liability Partnership Act, 2008;

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. SIGNIFICANT BENEFICIAL OWNER(SBO) 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:-

♦  holds indirectly, or together with any direct holdings, not less than 10 per cent. of the shares;

♦  holds indirectly, or together with any direct holdings, not less than 10 per cent. of the voting rights in the shares;

♦  has right to receive or participate in not less than 10 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;

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

> Explanation I. – If an individual does not hold any right or entitlement indirectly under the above first three clauses of SBO, he shall not be considered to be a significant beneficial owner.

>  Explanation II. – An individual shall be considered to hold a right or entitlement directly in the reporting company, if he satisfies any of the following criteria, namely.–

♦ the shares in the reporting company representing such right or entitlement are held in the name of the individual;

♦ 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.

> Explanation III. – An individual shall be considered to hold a right or entitlement indirectly in the reporting company, if he satisfies any of the following criteria, in respect of a member of the reporting company, namely:-

♦ where the member of the reporting company is a body corporate (whether incorporated or registered in India or abroad), other than a limited liability partnership, and the individual,––

• • • holds majority stake in that member; or
    • holds majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that member;

♦ where the member of the reporting company is a Hindu Undivided Family (HUF) (through Karta), and the individual is the Karta of the HUF;

♦ where the member of the reporting company is a partnership entity (through itself or a partner), and the individual,-

• • • is a partner; or
    • holds majority stake in the body corporate which is a partner of the partnership entity; or
    • holds majority stake in the ultimate holding company of the body corporate which is a partner of the partnership entity.

♦  where the member of the reporting company is a trust (through trustee), and the individual,-

• • • is a trustee in case of a discretionary trust or a charitable trust;
    • is a beneficiary in case of a specific trust;
    • is the author or settlor in case of a revocable trust.

♦  where the member of the reporting company is,-

• • • a pooled investment vehicle; or
    • 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,-

• is a general partner; or
• is an investment manager; or
• is a Chief Executive Officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity.

> Explanation IV. Where the member of a reporting company is,

• a pooled investment vehicle; or
• an entity controlled by the pooled investment vehicle,

based in a jurisdiction which does not fulfill the requirements referred to in 5^th clause of Explanation III, the provisions of first four clause of Explanation III, as the case may be, shall apply.

> Explanation V. – If any individual, or individuals acting through any person 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, such individual, or individuals, acting through any person or trust, as the case may be, shall be deemed to be ‘acting together’.

>  Explanation VI. – The instruments in the form of global depository receipts (GDR), compulsorily convertible preference shares or compulsorily convertible debentures shall be treated as ‘shares’.

7. Significant Influence means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies’.

DUTY OF THE REPORTING COMPANY: 

♦ Every reporting company shall take necessary steps to find out if there is any individual who is a significant beneficial owner to that reporting company; identify such individual to make a declaration in Form No. BEN-1.

♦ Every reporting company shall in all cases where its member (other than an individual), holds not less than 10 % of its:

• shares, or
• voting rights, or
• 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 Form No. BEN-4

DECLARATION OF SIGNIFICANT BENEFICIAL OWNERSHIP UNDER SECTION 90:

♦ 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 90 days from such commencement.

♦ 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 30 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 30 days for filing will be reckoned accordingly.

RETURN OF SIGNIFICANT BENEFICIAL OWNERS IN SHARES:

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

APPLICATION TO THE TRIBUNAL-

The reporting company shall apply to the Tribunal, –

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

♦ where the information given is not satisfactory, in accordance with subsection (7) of section 90, for order directing that the shares in question be subject to restrictions, including –

• • • restrictions on the transfer of interest attached to the shares in question;
    • suspension of the right to receive dividend or any other distribution in relation to the shares in question;
    • suspension of voting rights in relation to the shares in question;
    • any other restriction on all or any of the rights attached with the shares in question.

NON-APPLICABILITY:

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

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

♦ its holding reporting company:

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

♦ the Central Government, State Government or any local Authority;

• a reporting company, or
• a body corporate, or
• 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;

♦ 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 (InVITs) regulated by the Securities and Exchange Board of India,

♦ Investment Vehicles regulated by Reserve Bank of India, or Insurance Regulatory and Development Authority of India, or Pension Fund Regulatory and Development Authority.