Non-disclosure of Beneficial Shareholding: MCA Imposes Penalty

Non-disclosure of Beneficial Shareholding – Section 89(1) & 89(2): MCA Imposes Penalty

The Registrar of Companies in NCT of Delhi & Haryana has imposed a penalty on STEP1 ADVERTISING PRIVATE LIMITED and its relevant stakeholders for non-disclosure of beneficial shareholding, as per Section 89 of the Companies Act, 2013. The company had not filed necessary declarations regarding beneficial ownership within the stipulated timeline. Despite arguments presented by the company’s authorized representative, it was found that the compliance requirements of Section 89 were not met.

The penalty has been imposed on both the registered owner, Ms. Rashi Agarwal, and the beneficial owner, STEP1 INC PTE. LTD. The penalties amount to Rs. 1,60,400 each, considering the delay of 552 days in filing the required declarations. The order directs the payment of penalties within 90 days and submission of necessary declarations within 30 days, failing which further action may be taken. An appeal process is also outlined in case of disagreement with the order.

Government of India
Ministry of Corporate Affairs,
Office of Registrar of Companies,
NCT of Delhi & Haryana
4th Floor, IFCI Tower, 61, Nehru Place,
New Delhi -110019

Order No. ROC/D/Adj/Order/89/Step1/1901-1905 Dated: 01/05/2024

Order of Penalty Pursuant to Section 89 of the Companies Act, 2013 in the Matter of Step1 Advertising Private Limited (U72900HR2022FTC101716)

1. Appointment of Adjudicating Officer:–

Ministry of Corporate Affairs vide its Gazette notification no A-42011/112/2014-AD 11 dated 24.03.2015 appointed Registrar of Companies, NCT of Delhi & Haryana as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (hereinafter known as Act) r/w Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2. Company: –

Whereas the company viz. STEP1 ADVERTISING PRIVATE LIMITED (herein after known as ‘company’) has been incorporated on 02.03.2022 and having its registered office as per MCA21 Register address at H. No. 45-A Saraswati Kunj Gurugram Gurgaon Haryana 122001. The financial & other details of the subject company for the year ended 31st March, 2023 as available on MCA-21 portal is stated as under:

3. Facts about the Case:–

(i) It is observed from the record that company has filed its Annual Return for F.Y. 2022-2023 vide eform MGT-7 (SRN F62067756) wherein it is mentioned that STEP1 INC PTE. LTD. is holding 100% shares in the subject company. However, it is seen that company has in total 2 (two) shareholders. Therefore, the beneficial holder and the registered holder ought to have declared the status of their interest in the shares in terms of Section 89(1) and Section 89(2) of the Act. Further, it was also seen that the company has not filed MGT-6 in term of Rule 9 (3) of Companies (Management and Administration) Rule, 2014 with this office.

(ii) In view of above facts, a show cause notice u/s 89 of the Act was issued to the company vide dated 05.10.2023

(iii) In response to the said SCN, a reply has been received from the company on 15.10.2023 which inter alia states as under:

(a) That Step1 Advertising Private limited (the Company) was incorporated on 02nd March, 2022 as a Wholly Owned Subsidiary (WOS) of Step1 Inc Pte. Ltd. (Holding Company);

(b) That the management of the Holding Company passed a Board Resolution on 16th February, 2022 to incorporate a Wholly Owned Subsidiary in India by subscribing 9,999 equity shares and 1 share was decided to be subscribed by Ms. Rashi Agarwal who was decided to act as a Nominee shareholder for Step1 Inc Pte. Ltd.

(c) That the Holding Company disclosed at the time of incorporation of the Company that it will hold 100% stake in the Company and Ms. Rashi Agarwal had agreed to hold 1 Equity Share, on behalf of the Holding Company so as to ensure that the total number of shareholders in the Company should not be less than the statutory minimum requirement.

(d) That the intent of Section 89 of the Act is to have the information about the person who is acting behind the registered owner of the shares and is holding the beneficial interest in the shares of the Company. In case of subscribers to the MOA and AOA, the information about beneficial interest are provided at the time of incorporation itself by disclosing in the subscribers sheet of MOA and AOA which fulfills the intent of Section 89 and no further actions should be required post incorporation.

(e) We would like to state that the Company has not committed any non-compliance under Section 89 the Companies Act, 2013.

(iv) Further, in view of submissions made in reply, a hearing in the matter

was scheduled for oral submissions on 23.10.2023 wherein Mr. Alok Jain, Practising Company Secretary and Authorised representative (AR) of the Company appeared for hearing and submitted as under:

(a) The company at the time of incorporation itself had clearly mentioned that one share held by Ms. Rashi Agarwal is held on the behalf of the holding company i.e Step1 INC PTE LTD. this information is clearly part of public domain and accessible to people at large who while accessing the incorporation document of the company can clearly identify that Ms. Rashi Agarwal is merely holding the shares a nominee of the foreign holding company.

(b) The AR also emphasized that a detailed written reply has been given by the company in this matter which inter alia states as under:

“the time line of receiving the MGT-4 is linked with the entry of name of the person in the Register of Members and the same is not expressly defined in the Companies Act, 2013 in case of Subscribers to MOA. However, as per Section 56(4)(a) of the Act, it is in implied manner that the entry of name of the person in Register of Members should be made within 2 months from the date of incorporation and after that the declaration in Form MGT-4 need to be obtained within 30 days from such entry in the register of members. Ultimately, the maximum time line for receiving the declaration in MGT-4 will be 90 days from the date of incorporation.

Further, as per above mentioned ‘Interpretation in respect of obtaining MGT-5’, the maximum time line of receiving the declaration in MGT-5 will be 30 days from the date of incorporation.

In view of the above, in case of Subscribers to MOA, the time line for receiving the declaration in form MGT-4 and MGT-5 are different and are not synchronized. Therefore, it is not possible for the Company to file MGT-6 within 30 days from the receipt of the form MGT-4 & 5 simultaneously.

Further, in case of newly incorporated company, a company has to file form INC- 20A with the ROC relating to commencement of Business within 180 days from the date of incorporation which disclose that the subscribers to the MOA have made the payment in the bank account of the Company for the subscription of shares and only after filing of form INC-20A, a company can file any other forms with the ROC. So even if a company obtain a disclosure in form MGT-4 & 5, it will not be able to file form MGT-6 with the ROC before filing of form INC-20A whose maximum time line to file with the ROC is 180 days from the date of incorporation.

If we say that all the formalities relating to issuance of share certificate; entry in register of members; opening of bank account of the company; receiving of subscription money from the foreign subscriber in the company’s bank account; receipt of declaration in Form MGT-4 & 5; filing of form INC-20A with ROC, are to be complied within 30 days from the date of incorporation of the Company, it will be a punitive interpretation of the law just to file form MGT-6 with the information which was already provided to the ROC at the time of incorporation.”

The submissions of the AR are taken on record for disposal of this matter. The AR was also specifically asked as to whether that the shares of the company are held in DeMAT or not to which he replied in the negative, the register of members has also been furnished by the company which shows that the names of the shareholders entered in the register of member on 25.03.2022.

4. The relevant provision of the Act and Rules therewith:

Section 89. Declaration in respect of beneficial interest in any share:

(1) Where the name of a person is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares, such person shall make a declaration within such time and in such form as may be prescribed to the company specifying the name and other particulars of the person who holds the beneficial interest in such shares.

(2) Every person who holds or acquires a beneficial interest in share of a company shall make a declaration to the company specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the company and such other particulars as may be prescribed.

(5) If any person fails to make a declaration as required under sub-section (1) or sub-section (2) or sub-section (3), he shall be liable to a penalty of fifty 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 five lakh rupees.

(6) Where any declaration under this section is made to a company, the company shall make a note of such declaration in the register concerned and shall file, within thirty days from the date of receipt of declaration by it, a return in the prescribed form with the Registrar in respect of such declaration with such fees or additional fees as may be prescribed.

(7) If a company, required to file a return under sub-section (6), fails to do so before the expiry of the time specified therein, the company and every officer of the company who is in default shall be liable to a penalty of one thousand rupees for each day during which such failure continues, subject to a maximum of five lakh rupees in the case of a company and two lakh rupees in case of an officer who is in default.

Rule 9 of Companies (Management and Administration) Rule, 2014

(1) A person whose name is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares (hereinafter referred to as 9 “the registered owner”), shall file with the company, a declaration to that effect in Form No.MGT.4 in duplicate, within a period of thirty days from the date on which his name is entered in the register of members of such company:

(2) Every person holding and exempted from furnishing declaration or acquiring a beneficial interest in shares of a company not registered in his name (hereinafter referred to as “the beneficial owner”) shall file with the company, a declaration disclosing such interest in Form No. MGT.5 in duplicate, within thirty days after acquiring such beneficial interest in the shares of the company:

(3) Where any declaration under section 89 is received by the company, the company shall make a note of such declaration in the register of members and shall file, within a period of thirty days from the date of receipt of declaration by it, a return in Form No.MGT.6 with the Registrar in respect of such declaration with fee.

5. Adjudication of penalty:–

(a) The timeline provided in the Companies Act 2013 in various provisions specifically provides the outer limit within which the company needs to comply with such provision. Penal provision gets invoked only when the timelines are breached.

(b) The Authorised Representative (AR) of the company has primarily given two arguments to support his case. Firstly, he is of the opinion that since that declaration regarding the fact that Ms. Rashmi Agarwal was acting as a nominee shareholder was given at the time of incorporation itself, so there is no need to comply with the provision of section 89. Secondly, it has been stated that the timeline for different compliances are different.

(c) As regards the first argument of the authorised representative, it is stated that the compliance of section 89 is an independent requirement which is required to be separately complied. The authorised representative has failed to produce anything to show that the company is exempted from complying with the provision of section 89. Infact, in the register of member produced by the company which has been digitally signed by director Sh. Vishesh Sambyal, the column of ‘date of declaration u/s 89, if applicable’ has been left blank, which also shows that the compliance with regard to section 89 have not been done despite its clear applicability.

(d) With regard to second argument, it is stated that the authorised representative has erroneously submitted that the filing requirement of form MGT 4 and form MGT 5 are not in sync. Rule 9(1) of Companies (Management and Administration) Rule, 2014 clearly provides that the obligation to file MGT-4 by the registered owner gets triggered within the period of 30 days from the date on which the name of the registered owner (who does not hold the beneficial interest) is entered in the register of members of the company. Similarly, the filing requirement of form MGT-5 to be filed by the beneficial owner gets triggered within 30 days after the acquiring the beneficial interest in the shares of the company which are registered in the name of different person who is the registered owner. It is stated that in case of form MGT-5 as well, the requirement of date of entry in register of member is equally important as the beneficial interest in share cannot arise before that date. The argument of the authorised representative regarding the filing of INC 20A is not relevant in this case.

(e) The name of Registered owner i.e Ms. RASHI AGARWAL was entered in register of member on 02.03.2022 but she did not hold the beneficial interest in that one share. Therefore, in terms of the provision of section 89(1) registered owner was required to submit declaration in form MGT-4 by 01.04.2022. But the registered owner failed to submit the declaration till issuance of notice u/s 89 i.e 05.10.2023. Therefore, there is default u/s 89(1) and registered owner is liable for penalty u/s 89(5) of the Act for a delay of 552 days.

(f) Similarly, being the beneficial owner of one share, STEP1 INC PTE. LTD was required to submit declaration in form MGT-5 by 01.04.2022 but benefical owner failed to submit declaration till issuance of notice u/s 89 i.e 05.10.2023. Therefore, there is default u/s 89(2) and beneficial owner is liable for penalty u/s 89(5) of the Act a delay of 552 days.

(g) The subject company does not get covered under the purview of small company as defined u/s 2(85) of the Act. Hence, the benefit of section 446B would not be applicable on the company.

(h) Now in exercise of the powers conferred vide Notification dated 24th March, 2015 and having considered the reply submitted and hearing held in the matter, I do hereby impose the penalty as follows:

Table-I

6. Order:

a. Names of parties as mentioned in the table I above are hereby directed to pay the penalty amount as per column no. ‘D’ therein.

b. The subject company namely STEP1 ADVERTISING PRIVATE LIMITED is required to ensure that the payment of the penalty amount be paid by registered owner and beneficial owner.

c. The said amount of penalty shall be paid through online by using the website mca.gov.in (Misc. head) in favor of “Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi, within 90 days of receipt of this order, and intimate this office with proof of penalty paid.

d. Further, in exercise of power conferred vide Section 454(3)(b) of the Act, the registered owner and the beneficial owner are hereby directed to submit declaration in form MGT-4 and form MGT-5 respectively to the company within 30 days of the date of this order and thereafter the subject company is directed to file MGT-6 within a period of 30 days after receiving of declaration in MGT-4 and MGT-5.

e. Appeal against this order may be filed with the Regional Director (NR), Ministry of Corporate Affairs, B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi-110003 within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website mca.gov.in] setting forth the grounds of appeal and shall be accompanied by a certified copy of the order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014].

f. Your attention is also invited to section 454(8) of the Act in the event of non-compliance of this order.

(Pranay Chaturvedi, ICLS)
Registrar of Companies
NCT of Delhi & Haryana