In today’s corporate environment, transparency in ownership and control is essential to promote ethical business practices and prevent misuse of corporate structures. The Companies Act, 2013, plays a key role in ensuring this transparency by mandating disclosures related to ownership of shares.
Two significant provisions under this law are Section 89 and Section 90, which deal with the concepts of Beneficial Interest and Significant Beneficial Ownership (SBO) respectively. While these terms may seem similar, they address different compliance objectives and disclosure requirements.
This article aims to explain these provisions in a simplified, yet legally accurate manner for the benefit of companies, shareholders, professionals, and other stakeholders.
Section 89 – Declaration in respect of Beneficial Interest in any Share, Read with Rule 9 of The Companies (Management and Administration) Rules, 2014
Who is Covered?
Section 89 applies when the person whose name appears in the company’s register (the registered owner) is different from the person who actually enjoys the benefits of ownership (the beneficial owner).
Declaration by Registered Owner [Section 89(1) and Rule 9(1)]
Where a person is registered as the holder of shares in a company, but does not hold the beneficial interest in such shares (i.e., the real ownership lies with someone else), such registered owner is required to make a declaration in Form No. MGT-4 to the company within 30 days from the date of entry of his name in the register of members.
Provided that if there is any change in the beneficial interest, the registered owner must again file Form MGT-4 with the company within 30 days of such change.
Declaration by Beneficial Owner [Section 89(2) and Rule 9(2)]
Every person who holds or acquires beneficial interest in shares, but whose name is not entered as the holder in the register of members (i.e., the beneficial owner), must make a declaration to the company in Form No. MGT-5 within 30 days of acquiring such beneficial interest.
Provided that if there is any change in the beneficial interest, the beneficial owner is also required to file Form No. MGT-5 within 30 days of such change.
Change in Beneficial Interest [Section 89(3)]
In case of any change in the beneficial interest, both the registered owner and the beneficial owner must file fresh declarations in Form MGT-4 and Form MGT-5 respectively, within 30 days from the date of such change.
Company’s Obligation to file with ROC – Section 89(6) and Rule 9(3)
Upon receiving the declarations from the registered owner or beneficial owner, the company is required to note the same in its register and file a return in Form No. MGT-6 with the Registrar of Companies (ROC) within 30 days from the date of receipt of such declaration, along with the prescribed fees.
Power to make Rules [Section 89(4)]
The Central Government has been empowered to make rules for determining the manner in which beneficial interest and ownership in shares shall be disclosed and maintained under this section.
Penalty on default by Registered or Beneficial Owner [Section 89(5)]
If either the registered owner or the beneficial owner fails to make the required declaration under sub-sections (1), (2), or (3), he shall be liable to a penalty of Rupees 50,000. In case of a continuing failure, an additional penalty of Rupees 200 per day shall be levied, subject to a maximum of Rupees 5,00,000.
Penalty on Company and Its Officers in Default [Section 89(7)]
If the company fails to file Form No. MGT-6 within the specified time, the company and each officer in default shall be liable to a penalty of Rupees 1,000 per day, subject to a maximum of Rupees 5,00,000 for the company and Rupees 2,00,000 for each defaulting officer.
No Rights of Beneficial Owner [Section 89(8)]
This section provides that if a person, who is the beneficial owner of shares, fails to make the necessary declaration as required under this section, then that person cannot exercise or enforce any rights attached to those shares.
Furthermore, no person claiming under or through such beneficial owner (such as a transferee or legal representative) shall be entitled to enforce those rights either.
In essence, unless the beneficial ownership is properly disclosed to the company, the legal rights associated with those shares—such as voting rights, dividends, or other entitlements—cannot be exercised or claimed by the beneficial owner or anyone acting on their behalf.
Company not liable to Beneficial Owner [Section 89(9)]
The company’s obligation is limited to paying dividends and providing benefits to the registered shareholder. Once the company pays dividends to the name recorded in its register of members, its legal obligation is fulfilled—even if a beneficial owner exists.
Definition of Beneficial Interest in Share [Section 89(10)]
For the purposes of Section 89 and Section 90 of the Companies Act, 2013, the term “beneficial interest in a share” refers to the rights or entitlements a person may hold in relation to a share, whether directly or indirectly, and whether through a contract, arrangement, or any other means. A person is considered to have beneficial interest in a share if he, either alone or jointly with others:
1. Has the right to exercise, or to cause someone else to exercise, any or all rights attached to that share (such as voting rights); or
2. Is entitled to receive, or to participate in, any dividend or other financial benefits arising from that share.
This definition is crucial in identifying the true or beneficial owners of shares, especially in cases where the registered shareholder is merely a nominee or trustee for another person.
Power to Grant Exemptions [Section 89(11)]
The Central Government may, by notification and in public interest, exempt any class or classes of persons from compliance with any or all provisions of this section (except the definition under sub-section 10), either conditionally or unconditionally.
Section 90 – Register of Significant Beneficial Owners in a company, Read with The Companies (Significant Beneficial Owners) Rules, 2018
Who is Significant Beneficial Owner (SBO)?
An individual holding 10% or more beneficial interest in a company, either directly or indirectly (alone or with others), or having significant influence or control, is termed a Significant Beneficial Owner (SBO).
Declaration by SBO [Section 90(1)]
As per Section 90(1) of the Companies Act, 2013, read with Rule 2(1)(h) and Rule 3(2) of the Companies (Significant Beneficial Owners) Rules, 2018:
Every individual who, either alone or together with others (including through one or more persons or trusts, whether in India or abroad), holds a beneficial interest of 10% or more in the shares of a company, or who has the right to exercise significant influence or control over the company (as defined under Section 2(27) of the Act), is considered a Significant Beneficial Owner (SBO).
Such an individual is required to submit a declaration of their interest and relevant details to the company in Form BEN-1, within 30 days of acquiring such beneficial ownership or whenever there is a change in such ownership.
Company’s Duty to Maintain Register [Section 90(2) and Rule 5(1)]
Every company must maintain a register of SBOs in Form BEN-3, which includes:
- Name, date of birth, and address of the SBO,
- Details of their beneficial interest, and
- Any changes thereto.
Inspection of Register [Section 90(3)]
The SBO Register shall be open for inspection by any member of the company upon payment of a fee not exceeding ₹50 per inspection, as prescribed.
Filing with the ROC [Section 90(4) and Rule 4]
The company must file a return in Form BEN-2 with the Registrar of Companies (ROC) within 30 days of receiving BEN-1 from the SBO. This includes names, addresses, and other relevant details. Filing fees as per the Companies (Registration Offices and Fees) Rules, 2014 shall apply.
Section 90(4A) of the Companies Act, 2013 states that 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.
Notice to Suspected SBOs [Section 90(5) and Rule 6]
A company shall give notice in Form No. BEN-4, to any person (whether a member of the company or not) whom the company knows or has reasonable cause to believe-
- To be a significant beneficial owner of the company;
- To be having knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge; or
- To have been a significant beneficial owner of the company at any tie during the three 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 this section.
Time for Responding to Notice [Section 90(6)]
The person receiving the notice under subsection 5 of section 90, must respond within 30 days, providing the information sought.
Application to Tribunal [Section 90(7) and Rule 7]
The company shall-
- Where that person (person referred in sub section 5 of Section 90) fails to give the company the information required by the notice within the time specified therein, or
- Where the information given is not satisfactory,
apply to the Tribunal within a period of fifteen 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 transfer of interest, suspension of all rights attached to the shares and such other matters given in Rule 7 of The Companies (Significant Beneficial Owners) Rules, 2018, which includes
- 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.
Order by Tribunal [Section 90(8)]
The Tribunal, after hearing all concerned parties, may issue an order to restrict the rights associated with the shares. This must be done within 60 days of receiving the application.
Appeal for Relaxation to Tribunal [Section 90(9)]
The company or any aggrieved person may apply to the Tribunal to lift or relax restrictions imposed on the shares. This must be done within one year of the order.
Provided that if no application is made within one year, the shares shall be transferred to the Investor Education and Protection Fund Authority (IEPFA).
Along with that, Section 90(9A) of the Act, gives the power to Central Government to make rules for implementing the provisions of Section 90.
Penalty on SBO [Section 90(10)]
An SBO who fails to make the required declaration shall be liable to a penalty of Rupees 50,000, and in case of continuing failure, an additional Rupees 1,000 per day, subject to a maximum of Rupees 2,00,000.
Penalty on Company and its Officers in Default [Section 90(11)]
If the company:
- Fails to maintain the SBO register,
- Fails to file BEN-2,
- Fails to identify SBOs, or
- Denies inspection of the register,
Then:
- The company shall be liable to a penalty of Rupees 1,00,000 and an additional Rupees 500 per day for continuing failure, up to a maximum of Rupees 5,00,000.
- Every officer in default shall be liable to a penalty of Rupees 25,000, with an additional Rupees 200 per day of failure, up to Rupees 1,00,000.
Penalty for false information [Section 90(12)]
If any person knowingly provides false information or suppresses material facts in their declaration, they will be liable for fraud under Section 447, which can involve imprisonment and fine.
Key Forms to Remember:
| Form No. | Purpose | Filed By | Filed with |
| MGT-4 | Declaration by registered owner (not the beneficial owner) | Registered Owner | Company |
| MGT-5 | Declaration by beneficial owner | Beneficial Owner | Company |
| MGT-6 | Filing details of MGT-4 & 5 | Company | ROC |
| BEN-1 | Declaration of Significant Beneficial Ownership | SBO | Company |
| BEN-2 | Filing details of BEN-1 | Company | ROC |
| BEN-3 | Register of SBOs | Company | Maintained at Registered Office |
| BEN-4 | Notice to suspected SBOs | Company | Sent to suspected individuals |
Conclusion
Sections 89 and 90 of the Companies Act, 2013 are vital for enhancing transparency in shareholding structures and curbing misuse of ownership arrangements. Section 89 focuses on disclosing beneficial interests where the registered and beneficial owners differ, while Section 90 aims to identify individuals who exercise significant control over a company through indirect holdings or influence. Together, these provisions bring clarity, promote accountability, and assist regulators in tracking actual controllers of corporate entities. Ensuring timely and accurate filings under the respective MGT and BEN forms is not just a compliance requirement but a step towards corporate governance excellence. Companies must take proactive steps to identify SBOs and ensure declarations are received and reported as per law. Failure to comply may result in penalties, loss of shareholder rights, and legal complications. Hence, understanding and implementing these provisions is critical for every company and its stakeholders.
Author Bio
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