Introduction: Section 90 of the Companies Act, 2013, and the Significant Beneficial Owners (SBO) Rules, 2018, represent a pivotal move towards transparency and accountability in corporate governance. Enacted to prevent misuse of corporate structures, these regulations aim to identify the natural persons behind corporate vehicles. Let’s delve deeper into their implications and requirements.
Section 90 of the Companies Act, 2013 (CA, 2013) and the Companies (Significant Beneficial Owners) Rules, 2018 (SBO Rules, 2018) have been introduced on the basis of recommendation of the Financial Action Tank Force (FATF). The FATF established standards on transparency and beneficial ownership to prevent misuse of Corporate Vehicles. These provisions are a part of India’s commitment to FATF wherein India has been a member since, 2010.
The Primary objective behind Section 90 of CA, 2013 and SBO Rules, 2018 is to prevent misuse of Corporate Vehicles to evade tax or launder money or for the corrupt or illegal purposes, and to bring in transparency in company ownership and control.
In the Companies Act, 1956, there were no provisions with respect to Significant Beneficial Owner (SBO). The intention of the introduction of Section 90 of CA, 2013 is to collect the information about such structures and to know the individuals behind the entire corporate structure. Section 90 of the CA, 2013 and SBO Rules, 2018 have extra-territorial operation and apply to any person resident outside of India who falls within the definition of a SBO thereunder.
The current Section 90 of the CA, 2013 replaced erstwhile Section 90 of the CA, 2013 which dealt with investigation by the Central Government of beneficial ownership of shares in certain cases. The section was introduced pursuant to the Companies (Amendment) Act, 2017 which was modified by the Companies (Amendment) Act, 2019. SBO Rules, 2018 as currently in force, were notified into effect from 14th June, 2018 as modified by the Companies (Significant Beneficial Owners) (Amendment) Rules, 2019 (w.e.f. 8th February, 2019) and the Companies (Significant Beneficial Owners) (Second Amendment) Rules, 2019 (w.e.f. 1 July, 2019).
Section 90 of the CA, 2013 and SBO Rules, 2018 applies to all companies incorporated India. It applies to all categories of the companies incorporated under the CA, 2013 or under any erstwhile company law i.e. it applies to Public Companies (Whether listed or unlisted) and Private Companies. Provided that the Central Government may prescribe a class or classes of person who shall not be required to make a declaration under Section 90(1) of the CA, 2013, accordingly Rule 8 of SBO Rules, 2018 prescribed the categories of persons who holds shares in reporting company but are exempted to make a declaration Section 90(1) of the CA, 2013.
Section 90(1) of the CA, 2013 read with Rule 3 of SBO Rules, 2018 casts an obligation on SBO to make a declaration to the company specifying the nature of his interest and other particulars, in Form No. BEN-1 to the reporting company within 30 days of acquiring such significant beneficial ownership or any change therein. Further, pursuant to Section 90(2) read with Rule 5(1) of SBO Rules, 2018 a register of SBO is to be maintained by the reporting company in Form No. BEN-3.
Section 90(1) of the CA, 2013 is applicable only if SBO is a natural person. Only individuals are classified as SBO and an individual would have to meet the criteria specified under Rule 2(1)(h) of SBO Rules, 2018. Section 90 of the CA, 2013 and SBO Rules, 2018 have been enforced to identify such individuals (SBO) who indirectly along with or without direct interest, substantially hold beneficial interest over the company whose name is not entered in the register of members as the holders of such shares. There is no need to identity individuals who are having direct interest only (no indirect interest) as they are already recorded and their names are reflected in the register of members.
Further, the SBO Rules, 2018 also specifies that if an individual does not hold any right or entitlement indirectly, then he should not be considered to be a SBO. Therefore, to be a SBO, an individual must have indirect holding along with direct holding and the details of the entire shareholding (both direct and indirect) should be furnished by the SBO to the reporting entity.
Section 90(4) of the CA, 2013 read with Rule 4 of SBO Rules, 2018 impose obligation on the reporting company, upon receipt of declaration under Rule 3, to file a return in FORM No. BEN-2 with the Registrar in respect of such declaration, within a period of 30 days from the date of receipt of such declaration by it.
Section 90(4A) of the CA, 2013 along with Rule 2A of SBO Rules, 2018 impose further obligation on the reporting company to take necessary steps to identify an individual who is a SBO in relation to the company and require him to comply with the provisions of this section. For the same, 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.
Conclusion: Section 90 of the Companies Act, 2013, and the SBO Rules, 2018, signify a paradigm shift towards transparency and accountability in corporate ownership. By mandating disclosures and maintaining registers of significant beneficial owners, these regulations aim to curb illicit financial activities and foster a culture of integrity in corporate governance.
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