Provisions of Beneficial Interest Under Companies Act, 2013 And Rules Framed Thereunder

INTRODUCTION

A beneficial interest is the right to receive benefits on property, assets, or securities held by another party. The term beneficial interest is generally related to and used for trust, as nature of a trust, there is an author who creates the trust, trustee who holds the trust property, and beneficiary for whose benefit the trust is created. In trust, the ultimate benefit is for the beneficiary who does not hold the property on his own but has the right to receive all benefits that arise from the trust property subject to arrangement done by a trust deed (a governing document of trust).

The beneficial interest is also recognized, under the Companies Act, 2013 (“The Act”) and rules framed thereunder, in respect to shares where the name of the person is entered in the register of members but not hold the interest in such shares. Therefore, section 89 and section 90 of the Act identify, recognize, and register such beneficial interest and interest holders.

DEFINITIONS [Rule-2 of Companies (Significant Beneficial Owners) Rules, 2018]

  • 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—
  • exercise or cause to be exercised any or all of the rights attached to such share; or
  • receive or participate in any dividend or other distribution in respect of such share.
  • Reporting company means a company incorporated under this Act or any previous company law, required to comply with the requirements of section 90 of the Act.
  • Significant beneficial owner in relation to a reporting company means an individual,
  • who acting alone/together/through one or more persons or trust, and possesses any of the following rights or entitlements in such reporting company,
1 holds indirectly or any other holdings Not less than 10 % of Shares
2 holds indirectly or any direct holdings Not less than 10 % of voting rights
3 right to receive a dividend or participate in other distribution in an FY Not less than 10 % of total dividend or such distribution
4 has right to exercise significant influence or control in any manner other than direct holding
  • Criteria that shall be considered as a right or entitlement directly in the reporting company:

1. That the shares are held in the name of an individual

2. And individual holds and acquire a beneficial interest in reporting company and made declaration in respect thereof.

  • Criteria that shall be considered as a right or entitlement indirectly in the reporting company:
S.No. Member of the Reporting Entity Criteria of SBO
1 a body corporate (whether incorporated or registered in India or abroad) The Individual

a) holds a majority stake in that member or;

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

2 Hindu Undivided Family Individual who is the Karta of the HUF
3 partnership entity (through itself or a partner) The individual

a) is a partner or;

b) holds a majority stake in the body corporate which is a partner of the partnership entity or;

c) holds a majority stake in the ultimate holding company of the body corporate which is a partner of the partnership entity

4 Trust 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 settler in case of a revocable trust.

5 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)

The Individual

a) is a general partner;

b)  is an investment manager

c) is a Chief Executive Officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity.

  • 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.

DECLARATION UNDER SECTION-89

  • By Registered owner – Where the name of a person is entered in the register of members as the holder of shares in that company but who does not hold the beneficial interest in such shares, such person shall file with the company a declaration to that effect in form MGT-4 within a period of 30 days from the date on which his name entered into the registered of members. Where any change occurs in the beneficial interest in such shares, the registered owner shall file a declaration with the company in form MGT-4 within 30 Days from the date of such change.
  • By Beneficial Owner – Every person who holds or acquires a beneficial interest in a share of a company shall make a declaration to the company in form MGT-5 within 30 days from the date of acquisition of such interest in the company’s shares. In case of any change occurs in the beneficial interest the beneficial owner shall file a declaration with the company in form MGT-5 within 30 Days from the date of such change.
  • By company – Where any declaration under section 89 is received by the company, the company shall make a note of such declaration in the register of members [MGT-1] and shall file, within 30 days from the date of receipt of declaration by it, a return in Form MGT-6 with the Registrar.
  • Contravention and penalty – If any person fails to make a declaration as required above, he shall be liable to a penalty of Rs. 50,000 and in case of continuing failure, with a further penalty of Rs. 200 for each day after the first during which such failure continues, subject to a maximum of Rs. 5,00,000 and no right in relation to any share in respect of which a declaration is required to be made under this section but not made by the beneficial owner, shall be enforceable by him or by any person claiming through him.

If a company failed to file a return within the specified time period, the company and every officer of the company who is in default shall be liable to a penalty of Rs. 1000 for each day during which such failure continues, subject to a maximum of Rs. 5,00,000 in the case of a company and Rs. 2,00,000 in case of an officer who is in default and nothing in this section shall be deemed to prejudice the obligation of a company to pay a dividend to its members under this Act and the said obligation shall, on such payment, stand discharged.

DECLARATION UNDER SECTION-90

  • Every individual, who acting alone or together, or through one or more persons or trust, and persons resident outside India, holds beneficial interests, of not less than 10 %, in shares of a company or the right to exercise significant influence or control over the company, shall make a declaration to the company in Form BEN-1 specifying the nature of his interest and other particulars, and within 30 days of acquisition of the beneficial interest or rights and any change thereof.
  • Every company shall take necessary steps to identify an individual who is a significant beneficial owner in relation to the company and require him to comply with the provisions of this section and where the company received declaration in Form BEN-1 shall maintain a register of the interest declared by individuals and changes therein in Form BEN-2, which shall be open for inspection in working hours by payment of prescribed fees. Further, the company shall file a return of significant beneficial owners of the company and changes therein with the Registrar in Form BEN-2 within 30 Days from the receipt of a declaration.

DUTY OF COMPANY UNDER SECTION-90

  • A company shall give notice in Form BEN-2 to any person (whether or not a member of the company) whom the company knows or has reasonable cause to believe—

1. to be a significant beneficial owner of the company;

2. to be having knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge; or

3. to have been a significant beneficial owner of the company at any time during the 3 years immediately preceding the date on which the notice is issued, and who is not registered as a significant beneficial owner with the company as required under section 90.

  • The information required by the notice shall be given by the concerned person within a period not exceeding 30 days of the date of the notice. where that person fails to give the company the information required by the notice within the time specified; or where the information given is not satisfactory, the company may apply to the Tribunal within a period of 15 days of the expiry of the period specified in the notice, for an order directing that the shares in question be subject to restrictions with regard to the transfer of interest, suspension of all rights attached to the shares and such other matters as may be prescribed.
  • The Tribunal may, after giving an opportunity of being heard to the parties concerned, make such order restricting the rights attached with the shares within a period of 60 days of receipt of an application or such other period as may be prescribed.
  • The company or the person aggrieved by the order of the Tribunal may make an application to the Tribunal for relaxation or lifting of the restrictions placed as above, within a period of one year from the date of such order:
  • Provided that if no such application has been filed within a period of one year from the date of the order, such shares shall be transferred, without any restrictions, to the authority constituted under sub-section (5) of section 125 to administer the Investor Education and Protection Fund.
  • Contravention and Penalty – If any person fails to make a declaration as required, he shall be liable to a penalty of Rs. 50,000 and in case of continuing failure, with a further penalty of Rs. 1000 for each day after the first during which such failure continues, subject to a maximum of Rs. 2,00,000.

If a company, required to maintain a register and file the information with the registrar or required to take necessary steps, fails to do so or denies inspection as provided therein, the company shall be liable to a penalty of Rs. 1,00,000 and in case of continuing failure, with a further penalty of Rs. 500 for each day, after the first during which such failure continues, subject to a maximum of Rs. 5,00,000 and every officer of the company who is in default shall be liable to a penalty of Rs. 25,000 and in case of continuing failure, with a further penalty of Rs. 200 for each day, after the first during which such failure continues, subject to a maximum of Rs. 1,00,000.

  • If any person wilfully furnishes any false or incorrect information or suppresses any material information of which he is aware in the declaration made under this section, he shall be liable to action under section 447.

NON APPLICABILITY AND EXCEPTIONS

  • In case of Government Company – Section 89 and 90 shall not apply.
  • In case of Specified IFSC Public Company and IFSC Private Company – The time limit for filing of a declaration by the company with registrar shall be 60 days from the date of receipt of such declaration
  • Also, the rules of the significant beneficial owner shall not apply to following to the extent shares of the reporting company held by them:-

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 BEN-2.

3. the Central Government, State Government or any local authority and

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;

1. 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,

2. investment Vehicles regulated by the Reserve Bank of India, or Insurance Regulatory and Development Authority of India, or Pension Fund Regulatory and Development Authority.

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Location: Gurugram, Haryana, India
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