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

Amendment to Section 89 and 90 is one of the key amendments brought in by the Companies (Amendment) Act, 2017 (‘Amendment Act’).

On June 14, 2018, MCA vide its Notification, has enforced the provisions of amended Section 90 of the Companies Act, 2013 and also issued the Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2018 in relation to the determination of SBO.

Thereafter, considering various practical difficulties in implementing the provisions of these Rules, MCA on February 8, 2019 has notified the revised rules in order to facilitate better implementation of the provisions.

HIGHLIGHTS OF THE AMENDMENT RULES

Significant Beneficial Owner

1. A person is considered as a Significant Beneficial Owner, if he/she, whether acting alone, together or through one or more individuals or trust holds a beneficial interest of at least 10% (previously 25% was prescribed). The beneficial interest could be in the form of a company’s shares or the right to exercise significant influence or control over the company.

2. These individuals must make a declaration to the company specifying the nature of his/her interest and other essential particulars in the prescribed manner and within the permitted time frame.

3. The Amended SBO Rules provide that a Significant Beneficial Owner is an individual (as specified above), who:

• • Holds indirectly, or along with any direct holdings, at least 10% per cent of the shares of the company.
  • Holds indirectly, or along with any direct holdings, at least 10% of the voting rights in the shares of the company.
  • Has been vested with the right to receive or participate in at least 10% of the total distributable dividend, or any other distribution in a financial year solely through indirect holdings, or along with any direct holdings.
  • Has been vested with the right of exercising significant influence or control through direct-holdings and other means.

4. The Amended Rules have laid out the criteria on the rights or entitlements of direct holding in the Reporting Company based on the legal structure of the member. Here’s an overview of it:

Meaning of Certain Important Terms:

1. MAJORITY STAKE: This term has been newly inserted in the revised Rules, which has been defined to mean

• • holding of more than 50% of the equity share capital in the body corporate; or
  • holding of more than 50% of the voting rights in the body corporate; or
  • having the right to receive or participate in more than 50% of the distributable dividend or any other distribution by the body corporate.

2. PERSON ACTING TOGETHER: The erstwhile rules did not specify the meaning of this phrase and hence, the same was left for different interpretations. In this regard, the revised Rules prescribes the meaning of the phrase, as per which:

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’.

3. SHARES: As per the revised Rules, apart from the equity shares, the instruments in the form of global depository receipts, compulsorily convertible preference shares or compulsorily convertible debentures shall also be treated as ‘shares’.

Non-applicability of Rules:

The non-applicability net has been made clearer and more specific and wider considering the difficulties in determining the SBO in various situations. Now after the 2019 amendment, the SBO Rules shall not be made applicable to the extent the share of the reporting company is held by-

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

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

3. the Central Government, State Government or any local Authority;

4. the following 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;

• • a reporting company, or
  • a body corporate, or
  • an entity,

5. 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 SEBI; and

6. Investment Vehicles regulated by RBI, or IRDA, or Pension Fund Regulatory and Development Authority.

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 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 shares, voting rights, 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.

Due Date of Filing the Form:

• As per the Rules, the due date for filing Form BEN-1 was May 8 2019 (i.e. 90 days from the publication of the Amendment Rules – February 8, 2019) and that of Form BEN-2 is within 30 days of receipt of declaration in Form BEN-1, but the e-forms have were not made available on the MCA website.
• The format of Form BEN-1 has been provided with the Rules. Please find attached Form BEN-1 for your perusal. (This is attached as a separate copy in the email.)
• Form BEN-2 has been made available on the MCA website on July 1, 2019. Please find attached Form BEN-2 for your perusal. (This is attached as a separate copy in the email.)
• Please note that these forms need to be filed even in case of change in beneficial ownership.

* Note:  In case of change in interest within 90 days of notification of the Rules, period of 30 days will commence from the expiry of above mentioned 90 days period.

Application to the Tribunal:

Company shall apply to the National Company Law Tribunal (NCLT) within 15 days from the date of expiry of period specified in the notice:

In case the significant beneficial owner fails to give the information required by the notice in Form No. BEN-4 given information are not satisfactory, for 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.

Penalties for Non-compliance:

• Significant Beneficial Owners not filing Form BEN-1 would be imposed a fine ranging between INR 1,00,000 to INR 10,00,000 lakhs; and for a continuing offence, an additional fine of INR 1000 would be imposed for every day of default.
• Companies which are not compliant with the respective norms would be penalized with a sum of INR 10,00,000 to INR 50,00,000 (also applies to the people in-charge); and for continued offences, an additional fine of Rs. 1000 would be imposed for every day of default.

BASIC INFORMATION ABOUT THE FORMS:

Form BEN-1

• This is a basic form and not an e-form, i.e. it is like Form MBP-1, DIR-2.
• This form is a Declaration by the beneficial owner who holds or acquires significant beneficial ownership in shares.
• The beneficial owner has to provide his personal details including contact information.
• In addition to the basic details, the beneficial owner has to provide details regarding the ownership in the company.

Form BEN-2

• This is an e-form, i.e. it is like Form DIR-12, MGT-14.
• The form basically requires the Reporting Company to give detailed information about the Significant Beneficial Owner. Each Significant Beneficial Owner will be provided an SBO ID after the processing of the form.
• It is mandatory to enter the number of SBOs for whom this form is being filed for declaration by the company.
• Please note that the maximum number that can be entered here is 9.

Form BEN-3

1. This is basically a register which needs to be maintained by the reporting company which will provide information of beneficial owners holding significant beneficial interest.

2. The following details need to be maintained:

• • Name of the company and Registered office of the company
  • Name of the Beneficial Owner
  • Address and E-mail id
  • Date of Birth/ Age
  • Father’s/ Mother’s/ Spouse’s name
  • Occupation
  • Nationality
  • PAN/UIN Passport No. (in case of foreign national)
  • Status
  • Date of declaration under section 90 Date of cessation
  • Date of entry in Register Date of filing of BEN-2(SRN wise)
  • Any other interest, if any (11) Instructions, if any, given by the member

Form BEN-4

1. This form prescribes the format of the notice which a reporting company is required to send to an individual which it has reasonable cause to believe is a significant beneficial owner.

2. The reporting company also needs to attach a copy of Form BEN-1.

3. Please see below the format of the notice.

(Date)

[By post/email]

To:

Name and address of significant beneficial owner/any other person

Subject: Notice under sub-section (5) of Section 90 of the Companies Act, 2013 and rules made thereunder

The Company has reasonable cause to believe that:

• you are a significant beneficial owner of the company;
• have knowledge of the identity of significant beneficial owner/another person ………………..likely to have such knowledge;
• being a member hold not less than 10% of the shares/voting rights/rights on dividend or any other distribution in the company have been a significant beneficial owner of the company during the three years immediately preceding the date of this notice, and
• in respect of the above significant beneficial ownership, the return prescribed under Section 90 of the Act has not been filed in compliance with the Act.

You are accordingly advised to give the following information within 30 days of the date of this notice in accordance with the section 90 of the Companies Act, 2013:

1. Name and Address of the Beneficial Owner

2. PAN of the B.O

3. Name of the person/entity/trust/body etc in whose name the shares/rights are registered/held

4. Date of acquiring beneficial interest

5. Documents, terms and conditions or any other particulars regarding the BO ownership

6. Reason for not filing declaration in Form No. BEN-1.

7. Any other information incidental to or relevant or in your possession or knowledge to enable the company to evaluate this matter.

A copy of Form No. BEN-1 is attached for compliance.

The abovementioned particulars should be submitted in writing to the registered address of the company not later than 30 days of the date of this notice failing which the company shall proceed in the matter without further notice as per the provisions of the Act.

Name & signature

(Person authorized to issue notice)