Deciphering MCA’s Latest Amendment in SBO Provisions – A Deep Dive

The Ministry of Corporate Affairs (MCA) has sent ripples through the corporate world with its recent notification dated October 27th, 2023. This notification, titled “Companies (Management and Administration) Second Amendment Rules, 2023,” brings substantial changes to the Significant Beneficial Owner (SBO) compliance landscape. This article will dissect the key aspects of these amendments, offering a comprehensive understanding of their implications and requirements.

MCA recently issued penalty notifications to approximately 2000 companies for their late filing of BEN-2 (SBO Declaration). In response, MCA has issued advisory notices to all companies, emphasizing the need to fulfill their SBO compliance requirements under Section 90.

Recognizing the critical importance of SBO compliance, MCA has taken proactive measures. In alignment with this commitment, MCA has undertaken a revision of the Companies (Management and Administration) Rules, 2014, introducing rules 4 to 8 after sub-rule (3) in rule 9.

In its pursuit of strengthening corporate governance, MCA is dedicated to establishing robust SBO compliance standards.

Provisions of the Companies Act, 2013:

• Section 90 of Companies Act, 2013
• Rule 9 of of the Companies (Management and Administration) Rules, 2014

Applicability: These amended rules are applicable to all companies except One Person Companies.

Analysis of Amendment vide Companies (Management and Administration) Second Amendment Rules, 2023

The Ministry of Corporate Affairs (MCA) has introduced Sub Rules 4 to 8 following Sub Rule 3 in Rule 9 as part of this amendment.

i. Designation of a Person as Beneficial Owner Officer:

Every company shall appoint an individual under these rules, who will be responsible for providing information and cooperating with the Registrar or any other authorized officer regarding beneficial interest in the company’s shares.

ii. Who can be Designated for such Post:

i. Company Secretary, if the Act mandates the appointment of a CS.

ii. A Key Managerial Person, in the absence of a CS.

iii. Every Director, when there is neither a CS nor a KMP.

iii. How to Designate:

The company can pass a resolution during a Board Meeting to designate the appropriate person or persons as per these rules.

iv. How to inform the same to ROC:

As per Sub-Rule 7, every company must provide details of the designated person in the Annual return, i.e., MGT-7, which is required to be filed after implementing these rules.

v. What is the process to change the Designated Person:

As per Sub-Rule 8, if the company changes the designated person at any time, it should inform the Registrar by using e-form GNL-2, as specified under the Companies (Registration Offices and Fees) Rules, 2014

QUICK BITES:

Question. Who Acts as the Designated Person Until Appointment?

Answer: Until the designation process is completed, the notification specifies that certain individuals will be deemed as designated persons. These individuals are as follows:

i. company secretary, if there is a requirement of appointment of such company secretary under the Act and the rules made thereunder; or

ii. every Managing Director or Manager, in case a company secretary has not been appointed; or

iii. every director, if there is no company secretary or a Managing Director or Manager.

Note: Two points are not clear in the given Notification. MCA should issue clarification on the same.

1. Whether Companies needs to file any form like GNL-2 for first time designation of any person under these rules?

2. As per Sub Rule 5, Every Director shall be considering as Designated Person if there is no CS or KMP. Whether instead of every director company can designate only one director?

Conclusion

MCA’s latest amendment in SBO provisions is part of a broader effort to enhance transparency and accountability within Indian companies. The stipulation to designate an SBO Officer underscores the importance of identifying significant beneficial owners and ensuring their compliance with regulatory requirements. To ensure compliance and effectively navigate these changes, companies must remain vigilant and adaptable. They should keep a close watch for further clarifications from the MCA and make the necessary adjustments to their processes. This amendment is reflective of the ever-evolving regulatory landscape in the corporate sector, reinforcing the need for companies to embrace change and stay in step with evolving compliance requirements.

With these amendments, MCA has set a new standard for corporate governance and compliance in India, and companies are urged to embrace these changes with diligence and alacrity to ensure that they are in line with the latest legal requirements.

*****

Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).