Ministry of Corporate Affairs (MCA) has always been vigilant in curbing black money and round tripping of funds. A current measure to unearth the information, MCA has redrafted the provisions of Section 90 of the Companies Act 2013 to disclose ultimate individual beneficial shareholder of a company in order to reveal legitimate individual owner hiding behind the veils of shell companies.
AMENDED PROVISIONS UNDER COMPANIES ACT, 2013:
Amendment to Section 89 and 90 is one of the significant amendments brought in by the Companies (Amendment) Act, 2017 (‘Amendment Act’). On June 14, 2018, MCA has notified provisions of amended Section 90 of the Companies Act, 2013 and also issued the Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2019, (‘SBO Rules’) for determination of Significant Beneficial Owner (SBO). Considering various practical difficulties and representations of various stakeholders in implementation of the provisions of the SBO Rules, MCA on February 8, 2019 notified the revised rules.
Let’s discuss SBO with some FAQ’S
- Who is Significant Beneficial Owner (SBO)?
Any person (singly or along with other person including trust and person’s resident outside India) shall become SBO with respect to shares in a company if:
| CONDITION 1 |
OR |
CONDITION 2 |
| Holds indirectly, or together with any direct holdings, not less than ten percent of the shares; OR
Has right to receive or participate in not less than ten percent of the total distributable dividend, or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings; OR |
Holds indirectly, or together with any direct holdings, not less than ten percent of the voting rights in the shares; OR
Has right to exercise or actually exercises, directly or indirectly, significant influence or control, in any manner other than through direct holdings alone.” Control as defined under Section 2 (27) of the Companies Act, 2013. |
Therefore, the threshold for determination of SBO has been lowered to 10%.
- Compliance required on part of “SBO”
The compliances required on part of SBO have been enumerated below:
- Initial Disclosure:
Every individual who is an SBO in a reporting company, is required to file a declaration in Form No. BEN-1 to the reporting company within 90 days from February 8, 2019.
- Continual Disclosure:
Every individual, who subsequently becomes an SBO or where his significant beneficial ownership undergoes any change shall file a declaration in Form No. BEN-1 to the reporting company, within 30 days of acquiring such significant beneficial ownership or any change therein.
Clarification w.r.t. becoming the SBO or any change therein during the transition time:
Where an individual becomes an SBO, or where his significant beneficial ownership undergoes any change, within 90 days of the commencement of the Companies (Significant Beneficial Owners) Amendment Rules, 2019, it shall be deemed that such individual became the significant beneficial owner or any change therein happened on the date of expiry of ninety (90) days from the date of commencement of said rules, and the period of 30 days for filing will be reckoned accordingly.
Any failure to comply with the disclosure requirement in the form of declaration will attract minimum fine of INR 100,000/- which may extent to INR 10,00,000/-. In addition to this, per day penalty of INR 1000/- will also be applicable for each day of continuing default.
- Compliance required on part of “Company”:
The compliances required on part of Company have been enumerated below:
The Company is required to file such declaration as received from an SBO within 30 days from the receipt, in Form BEN-2 to the Registrar of Companies along with the fees as prescribed in Companies (Registration offices and fees) Rules, 2014.
The Company is also required to maintain register for such declarations received from SBO in the format prescribed in Form BEN-3.
The company is made liable to send notice (BEN-4) for obtaining declaration from the SBO in case where suo motto declaration has not been received.
In case even after sending of notice, declaration from the SBO has not been received, then the company is mandatorily required to move an application to the Tribunal (NCLT).
Any failure shall attract penalty of INR. 10,00,000/- which may extent to INR 50,00,000/- on the Company and every officer who is default. In addition to this, per day penalty of INR 1000/- will also be applicable for each day of continuing default.
- Exemption under SBO Rules
The rules are not applicable to the extent the share of the reporting company is held by:
- IEPF authority;
- Its holding reporting company, however, the details of such holding reporting company shall be reported in Form No. BEN-2;
- The Central Government, State Government or any local Authority;
- Reporting company; or a body corporate; or an entity, controlled by the Central Government or by any Stare Government or Governments or partially by the Central Government and partly by one or more State Governments;
- SEBI registered Investment Vehicles such as mutual funds, alternative investment funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (lnVITs) regulated by the Securities and Exchange Board of India;
- Investment Vehicles regulated by Reserve Bank of India, or Insurance Regulatory and Development Authority of India, or Pension Fund Regulatory and Development Authority.
Let us understand the concept of SBO with an example:
EXAMPLE :
Conclusion:
In a nutshell, the stern add-ons in the legal provisions have been made to unveil the actual owners having significant influence in Companies or having Control under the entities registered.
This content is meant for information only and should not be considered as an advice or opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.
Posted by:
CS Neetu Saini
AKGVG & Associates