Delay in filing E-Form BEN-2; Section 90(4) violated: MCA levied ₹8.33 Lakh Penalty

In a recent adjudication, the Ministry of Corporate Affairs (MCA) levied a penalty of ₹8.33 lakh on Cuckoo Appliances Private Limited for failing to file E-Form BEN-2 within the stipulated time frame. This delay constituted a violation of Section 90(4) of the Companies Act, 2013, which mandates the declaration of beneficial ownership.

Background of the Case

Cuckoo Appliances Private Limited, incorporated on March 6, 2018, with its registered office in Noida, Uttar Pradesh, faced scrutiny for non-compliance with Section 90 of the Companies Act, 2013. The company’s major shareholder, Cuckoo Homesys Co. Ltd., held 83.32% of its shares, while Bonhak Koo, an individual shareholder, held the remaining 16.68%. The significant shareholding structure necessitated the filing of E-Form BEN-2 to declare the beneficial ownership.

Provisions of Section 90

Section 90 of the Companies Act, 2013, requires every individual who holds beneficial interests of not less than 25% in shares of a company to declare their interests. This declaration must be made to the company, which in turn must maintain a register of such interests and file returns with the Registrar of Companies (RoC). Failure to comply with these provisions attracts penalties, as outlined in the Act.

Non-Compliance and MCA’s Action

Cuckoo Appliances failed to file E-Form BEN-2, prompting the MCA to issue a show-cause notice. Despite multiple hearings, the company’s responses were deemed inadequate. The MCA’s investigation revealed that the company did not properly assess the beneficial ownership structure, overlooking the voting rights, distribution of dividends, and control exercised by shareholders.

Adjudication Order

The adjudicating officer, Registrar of Companies, Uttar Pradesh, imposed a penalty of ₹8.33 lakh on Cuckoo Appliances for non-compliance. The order was based on the company’s failure to declare its significant beneficial owner as required under Section 90 read with the Companies (Significant Beneficial Owners) Rules, 2018.

The ₹8.33 lakh penalty imposed on Cuckoo Appliances Private Limited for delaying the filing of E-Form BEN-2 highlights the critical importance of compliance with the Companies Act, 2013.

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF REGISTRAR OF COMPANIES,
Uttar Pradesh
37/17, Westcott Building,
The Mall, Kanpur — 208001 (U.P.)
Phone : 0512 — 2310443/2310227

Order No. 03/09/SBO/UP/2024/Cuckoo/2820 Dated: 26/07/2024

ORDER OF ADJUDICATION OF PENALTY UNDER SECTION 454 OF THE COMPANIES ACT, 2013 READ WITH RULE 3 OF THE COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014 FOR VIOLATION OF PROVISIONS OF SECTION 90 OF THE COMPANIES ACT, 2013.

IN THE MATTER OF CUCKOO APPLIANCES PRIVATE LIMITED
(CIN : U52609UP2018FTC101653)

Date of hearing: 25.04.2024, 10.05.2024 and 13.06.2024

Present on behalf of Applicants: No one appeared on 10.05.2024 and Mr. Adarsh Chaturvedi, Accounts Manager as authorized representative appeared on 13.06.2024.

The Ministry of Corporate Affairs vide its Gazette Notification no A-4201¹/₁12/2014-Ad.II dated 24.3.2015, appointed the Registrar of Companies, Uttar Pradesh as the Adjudicating Officer in exercise of the powers conferred by Section 454(1) of the Companies Act, 2013 (hereinafter known as “the Act”) read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2. Whereas the company viz. CUCKOO APPLIANCES PRIVATE LIMITED (hereinafter as “‘the reporting company’) was incorporated under the provisions of the Companies Act, 2013 on 06.03.2018, and has its registered office situated at A-42/4 Priska Pride, 10th Floor, Sector- 62, Noida, Gautam Buddha Nagar, Uttar Pradesh, 201301, India. The shareholding details of ‘the reporting company’ as per list of shareholders attached with e-form MGT-7 for financial year 2022-23 is as follows:-

3. That the provisions of Section 90 of the Companies Act, 2013 reads:-

Section 90:- (1) 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.

(2) Every company shall maintain a register of the interest declared by individuals under sub­section (1) and changes therein which shall include the name of individual, his date of birth, address, details of ownership in the company and such other details as may be prescribed.

(3) The register maintained under sub-section (2) shall be open to inspection by any member of the company on payment of such fees as may be prescribed.

(4) Every company shall file a return of significant beneficial owners of the company and changes therein with the Registrar containing names, addresses and other details as may be prescribed within such time, in such form and manner as may be prescribed.

(4A) Every company shall take necessary steps to identify anan individual who is a significant beneficial owner in relation to the company and require him to comply with the provisions of this section.

(5) A company shall give notice, in the prescribed manner, to any person (whether or not a member of the company) whom the company knows or has reasonable cause to believe—

(a) to be a significant beneficial owner of the company;

(b) to be having knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge; or

(c) to have been a significant beneficial owner of the company at any time 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.

(6) The information required by the notice under sub-section (5) shall be given by the concerned person within a period not exceeding thirty days of the date of the notice.

(7) The company shall—

(a) where that person fails to give the company the information required by the notice within the time specified therein; or

(b) 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 as may be prescribed.

(8) 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.

(9) 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), 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 under sub-section (8), such shares shall be transferred, without any restrictions, to the authority constituted under sub-section (5) of section 125, in such manner as may be prescribed; (9A) The Central Government may make rules for the purposes of this section.

(10) If any person fails to make a declaration as required under sub-section (1), he shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to a maximum of two lakh rupees.

(11) If a company, required to maintain register under sub-section (2) and file the information under sub-section (4) or required to take necessary steps under sub-section (4A), fails to do so or denies inspection as provided therein, the company shall be liable to a penalty of one lakh rupees and in case of continuing failure, with a further penalty of five hundred rupees for each day, after the first during which such failure continues, subject to a maximum of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with a further penalty of two hundred rupees for each day, after the first during which such failure continues, subject to a maximum of one lakh rupees.

(12) If any person willfully 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.

4. (I) That Section 2(27) of the Act defines ‘control’:

“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) That Section 2(1) of the Companies (Significant Beneficial Owners) Rules, 2018 of the Act defines ‘significant influence’ as 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.

5. That Rule 2(1)(h) of the Companies (Significant Beneficial Owners) Rules, 2018 of the Act defines

“Significant Beneficial Owner” in relation to a reporting company means an individual referred to in sub-section (1) of section 90, who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, namely: -(i) holds indirectly, or together with any direct holdings, not less than ten per cent. of the shares;(ii) holds indirectly, or together with any direct holdings, not less than ten per cent. of the voting rights in the shares;(iii) has right to receive or 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: Explanation I. – For the purpose of this clause, if an individual does not hold any right or entitlement indirectly under sub-clauses (i), (ii) or (iii), he shall not be considered to be a significant beneficial owner.

Explanation II – For the purpose of this clause, an individual shall be considered to hold a right or entitlement directly in ‘the reporting company, if he satisfies any of the following criteria, namely.’

(i) the shares in ‘the reporting company’ representing such right or entitlement are held in the name of the individual;

(ii) the individual holds or acquires a beneficial interest in the share of ‘the reporting company’ under sub-section (2) of Section 89 and has made a declaration in this regard to ‘the reporting company’

Explanation III. – For the purpose of this clause, an individual shall be considered to hold a right or entitlement indirectly in ‘the reporting company, if he satisfies any of the following criteria, in respect of a member of ‘the reporting company, namely: -(i)where the member of ‘the reporting company’ is a body corporate (whether incorporated or registered in India or abroad), other than a limited liability partnership, and the individual, -(a)holds majority stake in that member; or(b)holds majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that member.

6. The shares of reporting company in majority are held by the holding company i.e. Cuckoo Homesys Co. Ltd. (83.32%). On examination of the filings made by ‘the reporting company’ in MCA-21 Registry till 13.02.2024 (i.e. the date of issuance of letter) there was no e-form BEN-2 filed by the reporting company and it was reason to believe that ‘the reporting company’ ought to have made compliance with Section 90 of the Companies Act, 2013 i.e. declaration of beneficial ownership by filing e-form BEN-2 of ‘the reporting company’ till the time of issuance of notice under Section 206(1) of the Act vide letter No. 03/09/SBO/UP/2024/Cuckoo/7029 to 7032 dated 13.02.2024.

7. The reporting company submitted its reply vide letter dated 22.02.2024 (through email dated 22.02.2024) wherein the details of shareholding in ‘the reporting company’ along with the corporate structure of ‘the reporting company’ was submitted. The reporting company submitted its corporate structure and the extract of the same are as follows:

A. Cuckoo Appliances Private Limited (reporting company)

B. Cuckoo Homesys Co. Ltd., Korea

C. Cuckoo Holdings

D. Mr. Bonhak Koo (Director of the reporting company)

Hence on the basis of above table as at point No. D, the shareholding of Mr. Bonhak Koo in the corporate structure is 44.78% i.e. by virtue of shares.

Reference A: Details of Corporate Structure as submitted by the Reporting Company

Further, the reporting company in its reply stated that none of the individual member having indirect holding in reporting company or has majority stake as defined under Section 2(27) of the Companies Act, 2013 and Rule 2(d) of the Companies (Significant Beneficial Owner) Rules, 2018. Thus, reporting company is not required to maintain register of significant beneficial owners as per provisions of Section 90 of the Companies Act, 2013.

8. On examination of the submission(s) made by the reporting company, it was observed that the reporting company’s reply and reasons were based on the self-evaluation for the shares held for beneficial interests, of not less than 10% of the reporting company by an individual, of the holding company. The reporting company did not take into consideration the nature of exercise of voting rights (in ‘the reporting company’) by virtue of rights on distributable dividend and any other distribution, exercise of control and exercise of significant influence.

9. On the observation made at Para 7 above, there existed sufficient reason(s) that ‘the reporting company’ ought to have declared its significant beneficial owner in terms of Section 90 r/w the Companies (Significant Beneficial Owners) Rules, 2018 of the Companies Act, 2013, (herein after referred as SBO Rules), hence a Show Cause Notice (SCN) was issued to ‘the reporting company’, its directors and KMP for non-compliance of Section 90 r/w SBO rules made thereunder, vide letter No. 03/09/SBO/UP/2024/Cuckoo/243-247 dated 15.042024 and a date of hearing was fixed for 25.04.2024.

10. Response of the reporting company to SCN issued under Section 90 of the Act:

Mr. Nityanand Singh, Practicing Company Secretary appeared (Membership No. 2668, CP No. 2388) appeared on behalf of the reporting company and its directors/ KMP on the date of hearing but it was without any authorization or Power of Attorney as such his presence was not taken on record as authorized representative. He submitted the response of ‘the reporting company’, which the undersigned had received vide e-mail dated 22.04.2024.

11. Thus, the reporting company was given another opportunity of hearing on 10.05.2024 along with the required further clarifications and information / documents so required by the undersigned. The clarifications so raised basically required the copy of BEN-1 declared by the SBO to the reporting company, details of the promoters, directors, shareholders etc. of certain major companies of Cuckoo, certified true copy of minutes of board meetings, etc. However, no one appeared on the said date.

12. Final opportunity of hearing was given on 13.06.2024. Mr. Adarsh Chaturvedi, Accounts Manager as authorized representative appeared on 13.06.2024. In response to the clarifications raised as mentioned at para- 11 above, ‘the reporting company’ submitted its reply through letter dated 13.06.2024, duly signed by Mr. Adarsh Chaturvedi, authorized signatory for the company. On examination of the response submitted, it was found that the company had received form BEN-1 on 01.04.2019, thereby naming Mr. Bonhak Koo, as Significant Beneficial Owner by virtue of shares.

13. On examination of records of the company on MCA21 Registry, it was found that the Company has filed e-form BEN-2 on 24.06.2024 vide SRN F96383328. On further examination of e-form BEN-2 and the documents submitted by the reporting company, it was found that the reporting company received BEN-1 on 01.04.2019. Thus, ‘the reporting company’ has made delay in compliance with Section 90 of the Companies Act, 2013 i.e. declaration of beneficial ownership by filing of e-form BEN-2 of ‘the reporting company’ in the prescribed time limit.

14. A letter no. 03/09/SBO/UP/2024/Cuckoo/2449 dated 11.07.2024 was also issued to Ms. Bhumika Sharma, ex-Company Secretary, KMP of the Company from 27.11.2019 to 15.02.2021 seeking her explanation for non-compliance of Section 90 of the Act on the available address and e-mail in MCA21 Registry. The letter sent to her address has not been received undelivered till date. In the Institute of Company Secretaries of India i.e. ICSI Portal, neither her updated address nor her e-mail was available. The date of hearing was fixed for 24.07.2024. However, neither any reply was received nor did she appear on the date of hearing.

15. Mahima Sharma, Company Secretary, KMP of the Company for the period 08.03.2021 to 30.03.2024 has submitted her response vide letter dated 25.04.2024 that the responsibility for compliance with Section 90 of the Companies Act, 2013 was entrusted with the Company. Therefore, the compliance and default of Section 90 of CA, 2013 was not under her supervision or control during the applicability trigger and subsequently thereafter. Further, she has submitted her resignation to the Company was on 29.02.2024 and it got accepted w.e.f. 15.03.2024 and as per MCA21 Registry, the date of cessation is 30.03.2024.

16. Hanchul Cho, Additional Director of the Company has submitted that the applicability of Section 90 of the Companies Act.2013 became applicable in December, 2019, whereas he had joined the company after 3 years i.e. on 20 December, 2022. In his reply vide letter dated 24.06.2024 he stated that the responsibility for compliance with Section 90 of the Companies Act, 2013 was entrusted with the Company.

17. A letter no. 03/09/SBO/UP/2024/Cuckoo/2550 dated 11.07.2024 was also issued to Mr. Jaho Koo, Additional Director of the Company from 11.06.2021 to 30.11.2021 seeking his explanation for non-compliance of Section 90 of the Act on the available address and e-mail in MCA21 Registry. The date of hearing was fixed for 24.07.2024. However, neither any reply was received nor did he appear on the date of hearing.

18. Adjudication of Penalty:

Taking in consideration the above facts and based on the submissions made by the reporting company and the documentary information and evidences filed by them in response to the SCN issued by the Registrar, it becomes evident that the reporting company has delayed in filing e-form BEN-2 (the date of filing is on 24.06.2024). Further, the same has also been admitted by the representatives of the company during the hearing.

Having arrived at this conclusion, the default u/s 90 r/w SBO Rules made there under the Companies Act, 2013, stands established on the company and its officers in default. Further, it was the duty of Ms. Bhumika Sharma, ex-Company Secretary, KMP of the Company for compliance of Section 90 r/w SBO Rules. Ms. Mahima Sharma, ex-KMP, Company Secretary of the Company joined the organization on 08.03.2021 as such she is excluded from the purview of officer-in-default as the onus of compliance was on Ms. Bhumika Sharma, ex-Company Secretary. Mr. Hanchul Cho, Additional Director of the Company had joined the company on 20 December, 2022. As such, he though is excluded from the purview of officer-in-default.

The default period is counted from the date of decriminalization of default i.e. 21.12.2020 till the date of issuance of Show Cause Notice i.e. 15.04.2024 for violation of Section 90(4) r/w SBO Rules made thereunder and the default period is for 1212 days.

A. Calculation of Penalty imposed for violation of Section 90 r/w SBO Rules made there under of the Companies Act, 2013:-

B. On the findings mentioned above by the Registrar, in respect of the violation under Section 90 r/w SBO Rules of the Act, the company Cuckoo Appliances Private Limited, its “officers’ are further directed pursuant to Section 454(3)(b) of the Companies Act, 2013 to determine all the individuals who fall under the definition of ‘significant beneficial owner’ in the letter and spirit of the Act, in respect of the reporting company and file the relevant e-form BEN 2 with respect to all such individuals within a period of 90 days from the date of this Order.

The company and its officers shall pay the said amount of penalty through online www.mca.gov.in (under Misc. Head) or by way of Demand Draft in favour of “Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi, payable at Delhi, within 90 days receipt of this order and intimate this office with the proof of penalty so paid. The Demand Draft shall be forwarded to this office address.

Appeal against this order may be filed in writing with the Regional Director (Northern Region), Ministry of Corporate Affairs, CGO Complex, Lodi Road, New Delhi, within a period of sixty days from the date of receipt of this order, in Form ADJ setting forth the grounds of appeal and shall be accompanied by a certified copy of this order [Section 454(5) & 454(6) of the Act, read with Companies (Adjudication of Penalties) Rules, 2014].

Attention is also invited to Section 454(8) of the Companies Act, 2013, in the event of non­compliance of this order. In case appeal is made, 0/0 The Registrar of Companies, U.P., may be informed along with the penalty imposed and the payments made.

(Seema Rath)
Registrar of Companies & Adjudicating Officer
Uttar Pradesh, Kanpur

Order No. 03/09/SBO/UP/2024/Cuckoo/2820 Dated: 26/07/2024