Companies Significant Beneficial Owners Rules, 2019

After a play of hide and seek for nearly 6 months the Significant Beneficial Owners (SBO) Rules makes a comeback. The MCA vide its notification dated 08.02.2019 has revised the SBO rules vide Companies (Significant Beneficial Owners) Amendment Rules, 2019. The Rules will be effective from date of their publication in the Gazattee of India.

To recap the Ministry of Corporate Affairs (MCA) by its notification dated 13/06/2018, had notified 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 and to unmask the hidden owners of the company.

After number of suggestions made by various Stakeholders regarding the confusion in the 2018 rules the MCA has now notified amendments to the previously notified Rules.

The intention still is to remove the Parda and unmask the real owners of Companies. As of now we see there are huge numbers of Companies with layers of investments made in each other and it’s tough to find out who is the real individual owner of these Companies. The MCA has now attempted to remove this Parda hence we can say….. its no more of parde mein rehne do parda na uthao…. Ab toh parda uthega aur bhed bhi khul jayega…!

This article attempts to clarify the SBO rules in a simplified manner. For this purpose we shall dissect the section and the rules for the sake of clarity and understanding.

Pertains to: Companies (Significant Beneficial Owners) Rules, 2018 & 2019.

NEW TERMS INTRODUCED:

MAJORITY STAKE:

A PERSON / BODY CORPORATE HOLDING:

> more than one-half of the equity share capital in body corporate.

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

> having the right to receive or participate in more than one-half of the distributable dividend or any other distribution by the body corporate.

REPORTING COMPANY:

It 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

FYI: Sec. 2(20) states: “company” means a company incorporated under this Act or under any previous company law.

“SIGNIFICANT BENEFICIAL OWNER” MEANS:

> INDIVIDUAL– Alone / Together , Through One/ More Natural PERSONS, Through trust possess one or more of the following rights:

(i) HOLDS INDIRECTLY,

OR

TOGETHER WITH ANY DIRECT HOLDINGS,

NOT LESS THAN TEN PER CENT. OF THE SHARES OF THE REPORTING COMPANY.

(ii) HOLDS INDIRECTLY,

OR

TOGETHER WITH ANY DIRECT HOLDINGS,

NOT LESS THAN TEN PER CENT. OF THE VOTING RIGHTS IN THE SHARES OF THE REPORTING COMPANY.

(iii) HAS RIGHT TO RECEIVE / PARTICIPATE IN

NOT LESS THAN TEN 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.

(iv) HAS RIGHT TO EXERCISE,

OR

ACTUALLY EXERCISES,

SIGNIFICANT INFLUENCE OR CONTROL*,

IN ANY MANNER OTHER THAN THROUGH DIRECT-HOLDINGS ALONE.

ANY INDIVIDUAL WHO DOES NOT HOLD ANY SUCH RIGHT SHALL NOT BE TREATED AS A SBO.

* FYI: 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.

FOR COMPANIES WHO HAS BODY CORPORATE AS SHAREHOLDERS:

THE SBO IS:

> A Company which is a Body Corporate

> Such Body Corp. is Incorporated in India or Abroad

> holds MAJORITY stake in that member;

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

FOR COMPANIES WHO HAS HUF AS SHAREHOLDERS 

THE SBO IS: The Karta of Such HUF.

FOR COMPANIES WHO HAS LLP AS SHAREHOLDERS 

THE SBO IS: The Individual who:

> is a partner

> holds majority stake in the body corporate which is a partner of the partnership entity

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

COMPLIANCES INVOLVED:

√ Declaration of significant beneficial ownership in shares:

PHYSICAL FORM	TIME PERIOD	BY WHOM	TO WHOM
BEN-1	Ninety days from commencement date. AND  within thirty days in case of any change in his significant beneficial ownership	Every significant beneficial owner	Reporting Company in which he holds the significant beneficial ownership.
BEN-1	Within thirty days in case of acquiring such significant beneficial ownership OR 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

FYI: 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 THIRTY DAYS FOR FILING WILL BE RECKONED ACCORDINGLY.

 √ Return of significant beneficial owners in shares:

E-FORM	TIME PERIOD	BY WHOM	TO WHOM
E FORM BEN-2	Within a period of thirty days from the date of receipt of declaration by the company.	Where any declaration is received by the Reporting 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:

PHYSICAL FORM	TIME PERIOD	BY WHOM
BEN-3	Always after the Commencement of these rules.	The company shall maintain a register of significant beneficial owners in the format as prescribed by central government.

• The register shall be open for inspection during business hours, at such reasonable time of not less than two hours, on every working day as the board may decide, by any member of the company on payment of such fee as may be specified by the company but not exceeding fifty rupees for each inspection.

√ Notice seeking information about significant beneficial owners:

PHYSICAL FORM	TIME PERIOD	BY WHOM	TO WHOM
BEN-4	Not Specified. Hence, Must be made within a reasonable time from the date of notification of these rules in Gazattee.	By the Reporting company.	To the Member (other than an individual), who holds not less than ten per cent. of its;- (a) shares, or (b) Its voting rights, or (c) 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 accordance with subsection (5) of section 90, in Form No. BEN-4.

IN CASE OF Failure of person to reply to the notice by the company in Form BEN 4:

           As per sub section (7) of section 90:

 THE REPORTING COMPANY SHALL –

• Where the person fails to give notice GIVEN IN BEN – 4 within the specified time or,
• Where the information given by that person is not satisfactory

APPLY TO TRIBUNAL WITHIN 15 DAYS FROM THE DATE OF EXPIRY OF PERIOD SPECIFIED IN THE NOTICE, FOR AN ORDER OF

• Restrictions with regard to transfer of interest,
• 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.

√ 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).

NON-APPLICABILITY of the Rules-

to the extent the share of the reporting company is held by:

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

(b) its holding reporting company:

(c) the Central Government, State Government or any local Authority;

(d) (i) a reporting company, or (ii) a body corporate, or (iii) 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;

(e) 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,

(f) lnvestment Vehicles regulated by Reserve Bank of India, or Insurance Regulatory and Development Authority of India, or Pension Fund Regulatory and Development Authority.

REVISED FORMS:

The MCA has further notified Revised Forms No. BEN-1, Form No. BEN-2, Form No. BEN-3 and BEN4. The REVISED VERSIONS OF FORMS can be accessed in the Complete Rules Released by MCA.

From the above explanations we can conclude that the implications of the amendmed section and revised notifed rules are quite wide.

The compliance burden of the companies will also increase remarkably, but the same are in tune of our Government’s motto of Swachh Company Abhiyaan !

Author: CS Rahul Harsh is from Kolkata and is currently working with Peerless Group of Companies. He may be reached at: csrahulharsh@gmail.com 

DISCLAIMER: The Author 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 be treated as a professional advice. The readers are advised to refer the Bare Acts and Rules before making any judgment.