LinkedIn India Penalized for Non-Compliance with Sections 89 & 90 of Companies Act 2013

Introduction: LinkedIn Technology Information Private Limited, incorporated on December 31, 2009, faces regulatory scrutiny for non-compliance with Sections 89 and 90 of the Companies Act 2013. This article examines the company’s reporting failures regarding significant beneficial owners (SBOs) and the ensuing penalties.

MCA Order: LinkedIn India Penalized for Companies Act Section 89 & 90 Violations

About the Company: –

LINKEDIN TECHNOLOGY INFORMATION PRIVATE LIMITED (hereinafter known as ‘company’ or ‘subject company’ or ‘LinkedIn India’) was incorporated on 31.12.2009 and has its registered office at 16A/20 WEA Main Ajmal Khan Road, Karol Bagh, New Delhi – 110005, India. The financials and other details of the subject company for immediately preceding F Y 2022-23 as available on MCA -21 portal is stated as below.

The holding structure of the subject company is below: –

What happened?

> The Company had filed an e-form MGT-6 dated 29.01.2024.

> Wherein it is reported that LinkedIn Technology Unlimited Company is a registered holder and

> LINKEDIN Ireland Unlimited Company is a beneficial owner in respect of 01 shares of the subject company and date of creation of beneficial interest was shown as 11.01.2024.

> This was contrary to the filings made by the subject company which showed that beneficial interest arose much earlier, but the Company had not declared its significant beneficial owner as required under the provisions of section 90 of the Act.

> The subject company did not file BEN 2 in terms of sub-section (4) of section 90 of the Act and even did not send form BEN 4 to the member company, leading to contravention of Section 90(5) of the Act.

> The subject company did not file BEN 2 as –

• • the Board of LinkedIn operates independently and does not report to any person. The clause 61 and 62 of the Articles of Association of the company provides as under:-
    • The Board may, from time to time, appoint such officers, who may or may not be Directors of the Company, as it thinks fit.
  • There is no individual who holds a majority stake in the ultimate holding company (Microsoft Corporation), Thus, as per the Subject Company, there is no SBO.

> It was established by the Adjudicating Authority that LinkedIn leads in diversified business with revenues from membership subscriptions, advertising sales and recruitment solutions under the leadership of Ryan Roslansky. In December 2016, Microsoft completed its acquisition of LinkedIn, bringing together the world’s leading professional cloud and world’s professional network. This shows that leadership role of Mr. Ryan Roslansky in the LinkedIn Group of which LinkedIn is a part.

> It is also noted that Microsoft’s CEO Mr. Satya Nadella is also the Chairman of the Board. The powers of the CEO of the Microsoft Corporation is provided under the byelaws of Microsoft Corporation. It is also noted that Mr. Nadella sets the agenda for the Board. Thus in the financial control exercised by the officers of Microsoft Corporation.

Key points (Test to ascertain applicability of Section 89 and 90)

> Beneficial ownership through holding subsidiary relationship.

• • Form the definition of Holding company it is evident that for company to be regarded as a Subsidiary, either its Board of Directors are controlled by the holding company, or more than ½ of its total voting power is controlled by the holding company through its own or together with one or more different subsidiaries of the holding company.
  • It is seen that Mr. Ryan Roslansky is a SBO of the Subject Company under section 90 of the Act on account of his ability to exercise control on the Board of Directors of the Subject Company, which is evident from the declaration of the subject company that LinkedIn Corporation is its holding company.
  • It is also seen that LinkedIn in its own website has itself disclosed that Mr. Ryan Roslansky reports to Mr. Satya Nadella and is part of the Microsoft’s senior leadership team.
  • Thus Mr. Satya Nadella is also a significant beneficial owner [SBO] of the subject company under section 90.

> Beneficial ownership through the reporting channel test

• • In any case, in the instant case, the issue is not to compare the position of CEO with the Board of Directors, but to only point out the general supervision of Microsoft Corporation is with its CEO.
  • It is clear that the majority of the directors of the subject company are employees of LinkedIn Corporation or Microsoft Corporation whose reporting channel would end up to Mr. Ryan Roslansky or Mr. Satya Nadella.
  • The extant rules cover the scenario of “right to exercise” of significant influence or control in any means other than through direct holdings alone.
  • Actual exercise of control or significant influence is not required to be proved. Through the layers of reporting channels, the “right to exercise” of control of the majority of the directors of the subject company by Mr. Ryan Roslansky or Mr. Satya Nadella has been affirmed.

> Beneficial ownership through the test of financial control

• • It is evident from the Board Meeting held in Singapore of the Subject Company wherein the Board of Directors were authorized to to execute the documents in relation to closing of existing bank accounts, further designate, revoke the designation of authorized signatories due to merger of the LinkedIn Corporation with Liberty Merger Sub Inc,

Authorized individuals

CFO -Microsoft Corporation

Treasurer – Microsoft Corporation

Assistant Treasurer – Microsoft Corporation

• • Again, under the rules all that is required to be established is the “right to exercise” of significant influence or control in any means other than through direct holdings alone. Given that primarily the control over the financial transactions of the subject company vests with the employees of the Microsoft Corporation, who are subject to the supervision of its CEO, the position of Mr. Satya Nadella gives him the “right to exercise control” in relation to the subject company.

Conclusion

Mr. Satya Nadella and Mr. Ryan Roslansky are the SBOs in relation to the subject company and are liable to a penalty under section 90(10) of the Act, due to their failure to report as per section 90(1).

The subject company and its officers are liable for action under section 90 (11) of the Act for its failure to take necessary steps as per section 90(4A) to identify the SBO in relation to the company.

1) Penalty for violation of Section 89(1) and 89(2) of the Act

• LINKEDIN TECHNOLOGY UNLIMITED COMPANY (Registered Owner of 1 share)
• LINKEDIN IRELAND UNLIMITED COMPANY (Beneficial Owner of 1 share)

2) Penalty for violation of Section 90(1) and 90(10) of the Act

Mr. Satya Nadella

(Significant Beneficial Owner)

Mr. Ryan Roslansky

(Significant Beneficial Owner)

3) Penalty for violation of Section 90(4A) and 90(11) of the Act

LINKEDIN TECHNOLOGY INFORMATION PRIVATE LIMITED

(company)

and all its 6 directors

4) Penalty for violation of Section 90(5) of the Act

LINKEDIN TECHNOLOGY INFORMATION PRIVATE LIMITED

(company)

and all its 6 directors

Conclusion: LinkedIn Technology Information Private Limited’s case highlights critical lapses in regulatory compliance concerning significant beneficial ownership disclosures under Indian corporate law. The penalties levied against Mr. Satya Nadella, Mr. Ryan Roslansky, the company, and its directors underscore the importance of transparent reporting practices. Moving forward, stricter adherence to legal obligations is imperative to maintain corporate integrity and regulatory compliance within India’s corporate governance framework.