A giant step has been taken by the Ministry of Corporate Affairs (MCA) by its notification dated 13/06/2018, notifying the Companies (Significant Beneficial Owners) Rules, 2018 along with Section 90 of the Companies Act, 2013 as amended by the Companies Amendment Act, 2017 to eradicate money laundering, avoidance and evasion of laws and rules and regulations by companies.
The purpose of this article is to bring to the fore certain contentious issues that arise for consideration which required a serious thought. For this purpose we shall dissect the section and the rules for the sake of clarity and understanding.
Section: 90 of the Companies Amendment Act, 2017
Before starting with the topic let us understand what “significant beneficial owner” means:
“significant beneficial owner” means an individual referred to in sub-section (1) of section 90 holding ultimate beneficial interest of not less than ten per cent read with sub-section [10J of section 89, but whose name is not entered in the register of members of a company as the holder of such shares, and the term ‘significant beneficial ownership’ shall be construed accordingly;
Implication: An individual who holds ultimate beneficial interest of not less than 10% of the paid up share capital (either Equity or Preference or Both) of the company shall be noted as its significant beneficial owner.
For the purpose of this clause, the significant beneficial ownership, in case of persons other than individuals or natural persons, shall be determined as under
(i) where the member is a company, the significant beneficial owner is the natural person, who, whether acting alone or together with other natural persons, or through one or more other persons or trusts, holds not less than ten per cent. share capital of the company or who exercises significant influence or control in the company through other means;
Implication: In case of company being a member, the significant beneficial owner will be the natural person who alone or with other natural person or more other persons or trusts is holding less than 10% of share capital of the company or exercises significant influence or control in the company.
The Term ‘Control’ has been defined in clause (27) under Section 2 of the Companies Act, 2013.
As per clause (27) of section 2 – “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.
(ii) where the member is a partnership firm, the significant beneficial owner is the natural person, who, whether acting alone or together with other natural persons, or through one or more other persons or trusts, holds not less than ten percent. of capital or has entitlement of not less than ten per cent. of profits of the partnership;
Implication:In case of partnership firm being member, the significant beneficial owner will be the natural person who alone or with other natural person or more other persons or trusts is holding less than 10% of share capital of the company or has not less than 10% of the entitlement of profits of the partnership.
(iii) where no natural person is identified under (i) or (ii), the significant beneficial owner is the relevant natural person who holds the position of senior managing official;
Implication: where there are no natural person under(i) or (ii), the significant beneficial owner will be the relevant natural person holding the position of senior managing official.
The Term Senior Managerial Position shall include:As per the general customary practice senior managerial personnel shall include employees’ who have been power by the company to act as such other officer of the company, as it may deem fit from time to time, within the definition of Key Managerial Personnel as per section 203 of the Companies Act, 2013.
(iv) where the member is a trust (through trustee), the identification of beneficial owner(s) shall include identification of the author of the trust, the trustee, the beneficiaries with not less than ten per cent. interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership;
Implication: In case of trust being member, the beneficiaries will be the trustee who holds not less than ten percent interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain ofcontrol or ownership.
It has been clarified by the central government that instruments in the form of global depository receipts, compulsorily convertible preference shares or compulsorily convertible debentures shall be treated as shares for the purpose of this clause.
ENABLING PROVISION OF THE ACT:
SUB-SECTION (1) OF SECTION 90– Every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests, of not less than twenty-five per cent. or such other percentage as may be prescribed, in shares of a company or the right to exercise, or the actual exercising of significant influence or control as defined in clause (27) of section 2, over the company (herein referred to as “significant beneficial owner”), shall make a declaration to the company, specifying the nature of his interest and other particulars, in such manner and within such period of acquisition of the beneficial interest or rights and any change thereof, as may be prescribed:
Provided that the Central Government may prescribe a class or classes of persons who shall not be required to make declaration under this sub-section.
Implication:Every Individual alone or through other persons holding beneficial interest of not less than 25% or such other percentage (not less than ten per cent) in shares of the company or have right to exercise control as defined in clause (27) of section 2over the company shall be referred to as significant beneficial owner.
The Central Government has the power to prescribe class or classes of persons who will be covered under this sub-section. The same has been provided in the Rules by the CG.
The meaning of the significant beneficial owner is now quite clear from the above discussion.
The required compliances for the above mentioned section are as follows:
√ Declaration of significant beneficial ownership in shares:
|FORM||TIME PERIOD||BY WHOM||TO WHOM|
|BEN-1||Ninety days from commencement date i.e. 13.06.2018
within thirty days in case of any change in his significant beneficial ownership
|Every significant beneficial owner||Company in which he holds the significant beneficial ownership|
|BEN-1||Within thirty days in case ofacquiring such significant beneficial ownership
In case of any change in such ownership.
|Every individual who acquires shares after the commencement date i.e. 13.06.2018||Company in which he is going to hold the significant beneficial ownership|
√ Return of significant beneficial owners in shares:
|FORM||TIME PERIOD||BY WHOM||TO WHOM|
|Within a period of thirty days from the date of receipt of declaration by the company.||Where any declaration is received by the company, the company shall file a return in the prescribed form.||With the Registrar in respect of such declaration in prescribed form.
√ Register of significant beneficial owners:
|FORM||TIME PERIOD||BY WHOM||TO WHOM|
|The company shall maintain a register of significant beneficial owners in the format as prescribed by central government.
√ Notice seeking information about significant beneficial owners:
|FORM||TIME PERIOD||BY WHOM||TO WHOM|
|A company shall give notice seeking information regarding Register of significant beneficial owners in the prescribed form.||
√ Notice by the company to the person believed to be the ‘’significant beneficial owners’’:
Sub section (5) of section 90 provides that:
A Company shall give notice to any person for whom the company has reasonable cause to believe:
√ Reply to the company’s notice:
Sub section (6) of section 90 provides that:
Concerned person as defined under sub-section (5) shall give the information required by the notice within a period not exceeding 30 days of the date of the notice as given by the respective company.
√ Failure of person to reply to the notice by the company:
As per sub section (7) of section 90:
The company shall –
apply to tribunal within 15 days from the date of expiry of period specified in the notice, for an order of
√ As per rule 7 of the Companies (Significant Beneficial Owners) Rules, 2018
Application to the Tribunal :
The company may apply to the Tribunal in accordance sub-section (7) of section 90,for order directing that the shares in question be subject to restrictions, including –
(a) restrictions on the transfer ofinterest attached to the shares in question;
(b) suspension ofthe right to receive dividend in relation to the shares in question;
(c) suspension ofvoting rights in relation to the shares in question;
(d) any other restriction on all or any ofthe rights attached with the shares in question.
√ Order by tribunal:
As per sub section (8) of section 90:
On any application made under sub-section (7), 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 sixty days of receipt of application or such other period as may be prescribed.
√ Application by company/person to tribunal for relief:
As per sub section (9) of section 90:
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 under sub-section (8).
As per sub section (10) of section 90:
There are penalties as well if such person fails make such disclosure. A penalty of Rs. 1 to 10 lakhs plus upto Rs. 1000 for every day of delay can be levied. False disclosures can result even in prosecution.
As per sub section (11) of section 90:
If a companyfails to comply with sub-section (2) and (4) or denies inspection as provided therein, then the penalties shall be as follows:
For company & officer in default of the company – Rs. 10-50 lakhs plus up to Rs. 1000 for every day of delay can be levied.
As per sub section (12) of section 90:
If any person wilfully furnishes false or incorrect information or suppresses any material information of which he is aware in the declaration made under this section, shall be liable to action under section 447.
Non-Applicability of the section / rules:
These rules are not made applicable to the holding ofshares of companies/body corporates, in case of pooled investment vehicles/investment funds such as Mutual Funds, Alterative Investment Funds (AIFs), Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (lnv ITs) regulated under SEBI Act.
Conclusion: In the above article we have tried to encapsulate the content of the law, brought to the fore some issues which engage attention.
From the above explanations we can conclude that the implications of the amendmed section and newly notifed rules are quite wide. The compliance burden of the companies will also increase remarkably, but the same has made it bring to the fore certain contentious issues that need serious thought to eradicate money laundering, avoidance and evasion of laws and rules and regulations by companies.
DISCLAIMER: The Authors have taken utmost care while drafting the article but it may occur that certain error creeps in. This article is for academic purpose and should not be treated as a professional advice. The readers are advised to refer the Bare Acts and Rules before making any judgment.