ANALYSIS OF DISCLOSURE OF BENEFICIAL INTEREST
DIVYANSHU SAHNI & ASSOCIATES
COMPANY SECRETARIES
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Introduction
This Article aims to bring clarity on new Section 90 of Companies Act,
2013 (‘the Act) introduced by the Companies (Amendment) Act, 2017 and the
Companies (Significant Beneficial Owner) Rules, 2018 (‘the Rules’), notified on
13th June, 2018.
Section 90 had introduced concept of “Significant Beneficial Interest
(‘SBI’)” and goes on to talks about “Filing of Return by the Significant
Beneficial Owners (‘SBO’) of the Company”, “Maintenance of Register of Interest
declared by individuals”, and also specifies fines and penalties for
non-compliance.
Important Terms under the Act and Rules
Before understanding the provisions of the Act and the Rules, the following are the Basic Terms to understand the Concept of
Ownership Rules:
i.
Registered
Owner (RO): means a person whose name is entered in the register
of members of the company as holder of shares in that company but who does not
hold beneficial interest in such shares;
In simple words, such persons are not actual owners of shares. Only their
name is entered in the register of members. RO enjoy the following rights,
voting rights in the Company,
Vote on poll, name shall be entered in register of members, entitled
to sign proxy form, shall be counted for the purpose of quorum etc.
ii. Beneficial Owner (BO): Every person holding
or acquiring a beneficial interest
in shares of a company not registered in his name.
In simple words, BO is the actual owner of the shares. Only his name is
not entered in register of members.
He is entitled a) To exercise any or all the rights
attached to the shares. b) Receive
and participate in the dividends and other distributions like Right offer,
Bonus Shares, etc.
iii.
Beneficial
Interest (BI): Beneficial interest in a share
includes, directly or indirectly, through any contract, arrangement or
otherwise, the right or entitlement of a person alone or together with any
other person to;
(i)
Exercise or cause to be exercised any or all of the rights attached to
such share; or
(ii) Receive or participate in
any dividend or other distribution in respect of such share.
(In view of the absence of a
definition of beneficial interest in a share in a company, the above stated
provision has been newly inserted as subsection 10 of Section 89 of the
Companies Act, 2013)
iv.
Significant
Beneficial Owner (SBO): Every individual, who acting alone
or together, or through one or more persons
or trust, including a trust and persons resident
outside India, holds ultimate beneficial interests of
not less than 10%, in shares of the company or the right to exercise, or the
actual exercising of significant influence or control over the company.
(Note: For the purpose of calculation of 10% of beneficial interest
in shares, shares also Includes, instrument in form of Global Depository
Receipts, Compulsorily Convertible Preference Shares or Compulsory convertible
debentures.)
Further, for
the purpose of
Significant Beneficial Owner,
in case of
‘person other than individuals
or natural person’, shall be determined as under:
S.
No.
|
Where Member is
|
Particulars
|
Percentage
|
1.
|
Company
|
Significant beneficial owner is the natural
person, who,
–
Whether acting alone or
–
together with other natural persons,
or
–
through one or more other persons
or trust
|
Hold atleast 10% of share capital of the Company
or Who exercises significant
influence or control in the
company through other means.
|
2.
|
Partnership Firm
|
Significant beneficial owner is the natural
person, who,
–
Whether acting alone or
–
together with other natural persons,
or
–
through one or more other persons
or trust
|
Hold atleast 10% of
capital or Has entitled to not less than 10% of profits of the firm.
|
3.
|
Where no
natural person is identified under (A) and
(B) mentioned above?
|
In this case, the SBO is
the relevant natural person who holds the position of senior managing
official.
|
-
|
4.
|
Trust
|
The beneficial owner shall includes,
–
identification of the author of the
trust,
–
the trustee,
– the beneficiaries with not less than 10% interest in the trust
and
–
any other natural person exercising ultimate effective control over
the trust through a chain of control or ownership.
|
The difference between Beneficial Owner (BO)
and Significant Beneficial Owner (SBO)
Beneficial Owner (Sec. 89)
|
Significant Beneficial Owner (Sec. 90)
|
Every person holding or
acquiring a beneficial interest in shares of a company not registered in his
name.
|
SBO means an
individual, who acting alone or together, or through one or more
persons or trust, including a trust and persons resident outside India, holding
ultimate
beneficial interest of not less than 10% and whose name is not
entered in the register of members of a
Company.
|
Beneficial
owner is required to make disclosures as per Section 89 even if interest is
more than or less than 10%.
|
Disclosures requirement of SBO shall occur only if
interest is at least 10%.
|
Disclosure of Beneficial Interest under Section 89 of the Act
Section 89 deals
with “Declaration in respect of Beneficial Interest in any Share”, As per the
Section read with the Companies (Management and Administration) Rules, 2014,
(1) The Registered owner shall
make a declaration to the company in Form No. MGT - 4.
(Compliance
by Registered owner)
(2)
Beneficial Owner shall make a declaration to the company
in Form No. MGT - 5.
(Compliance
by Beneficial Owner)
(3) If any change occurs in the Beneficial Interest
in such shares,
within a period
of 30 days of such change,
the RO shall make a declaration of the changes
to the company in Form No. MGT – 4 and BO to the company in
Form No. MGT – 5.
(4) If any person fails to make
the above said declaration, without any reasonable cause, they shall be punishable with fine which may extend to Rs. 50,000/-. In case the failure
is continuing one, they will face a further fine which may extend to Rs. 1,000/-
for every day after the first failure.
(5)
The company shall
make note of the above
declarations and file the same with the ROC
in Form No. MGT-6 within 30 days from the date of receipt of such declaration. If the company fails to do so, the company
and the officer who is in default shall be punishable with fine not less than Rs. 500/- and can extend up to Rs. 1000/-. In case the failure is continuing one, they will
face a further fine which may extend to Rs. 1000/- for every day after the
first failure. Also, the Companies are exempted from filing beneficial
ownership details with ROC (in Form No. MGT - 6) in respect of a trust which is
created, to set up a Mutual Fund or Venture Capital Fund or such other fund as
may be approved by the SEBI. (Compliance
by the Company)
(6) The rights in relation
to shares shall not be enforceable by BO or by any person claiming through him, if the declaration
as aforesaid is not made by the BO.
Disclosure of Significant Beneficial Interest (SBI) under
Section 90 of the Act
Section 90 is
applicable to every individual Significant Beneficial Owners holding the SBI as
defined above. As per the Section 90 read with the Companies (SBO) Rules, 2018,
(1)
SBO shall file a declaration in Form No. BEN-I to the company in which
he holds the SBI as on 13.06.2018, within
90 days from the commencement date (i.e by 12.09.2018)
and within 30 days in case of any change in the SBI.
(2)
Every individual who acquires SBI after 13.06.2018, shall file a
declaration in Form No. BEN-I to the company
within 30 days of acquiring the SBI or in case of any change
in such ownership.
(3)
Every company shall file a return of SBO of the company and the changes
therein in Form No. BEN-2
with the Registrar (ROC) within a period of 30 days from the
date of receipt of declaration
by it.
(4)
Every company shall maintain a register of interest declared
by individuals and changes
therein in Form No. BEN-3. The Register shall be open for inspection by any
member of the company on payment of fees not exceeding Rs. 50/- for not less
than 2 hours during business hours on every working day as the Board may decide.
(5)
The Company has the power
to give notice in Form No. BEN-4
to any person, whether or not
a member, whom the company knows or has reasonable cause to believe –
i.
to be a Significant Beneficial Owner of the company;
ii.
to be having knowledge of the identity of a Significant Beneficial
Owner or another person likely to have such knowledge; or
iii.
to have been a Significant Beneficial Owner of the company at any time during the 3 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 shall be given by the concerned
person within a period of 30 days from the date of the notice.
If a person fails to give the information required by the notice
or where the information given is not satisfactory, within a period of 15 days of the expiry of the
period specified in the notice, the Company shall apply to the Tribunal . The
company can seek an order from the Tribunal,
directing:
a. restrictions on the transfer
of interest attached to the shares in question;
b. suspension of the right to
receive dividend in relation to the shares in
question;
c. suspension of voting rights
in relation to the shares in question;
d. any other restriction on all
or any of the rights attached with the shares in question
(7)
The Tribunal may, after giving an opportunity of being heard, make an order restricting the rights attached with the
shares within a period of 60 days of the receipt of application.
(8)
If any person fails to make a declaration, he shall be punishable with
fine which shall not be less than 1 lakh rupees but which may extend to 10 lakh
rupees. In case the failure is continuing one, a further
fine which may extend to 1 thousand
rupees for every day after first during which failure continues.
(9) If a company fails to
maintain a Register or fails to file a return or denies inspection as per this
section, the company and every officer of the company who is in default shall
be punishable with the fine which shall not be less than 10 lakh rupees. In
case the failure is continuing one, a further
fine which may extend to 1 thousand
rupees for every day after first during which failure continues.
(10) If any person wilfully
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.
Exemptions from Declaring BI (MCA Notification & Rule 8 of SBO Rules)
First thing to note, Notification GSR 463(E) dated 5th June, 2015 completely
exempts government companies from applicability of Sec. 89 and Sec. 90 of the Act. Further, these SBO
rules are not applicable for the Holding of Shares of Companies/Body Corporates
by pooled Investment Vehicles/Investment Funds such as Mutual Funds,
Alternative investment Funds, Real Estate Investment Trusts and Infrastructure
Investment Trusts regulated under SEBI Act.
E.g: Alternative investment Funds holds 50% of shares
in Zing Ltd and Mr. Anil holds 25% in AIF. In this case, there is a clear
exemption to pooled investments under Rule 8 and hence, concept of SBO and
disclosures are not applicable.
Some Practical Examples for better understanding
Problem:
Company ‘ABC Ltd’ holding 60% in Subsidiary Company (XYZ Ltd). Mr. Arun,
Mr. Bijo and Mrs. Chandra hold 10%, 25% and 40% of shares of Company ‘ABC Ltd’
i.e Holding Company. Whether
Mr. Arun, Mr. Bijo and Mrs. Chandra
have to declare
SBO to the Company XYZ Ltd?
Solution: SBO of Mr. Arun, Mr. Bijo and Mrs. Chandra in ‘XYZ Ltd’
shall be as follow:
S.
No.
|
Shareholders
|
Holdings
|
Actual
Interest in XYZ Ltd
|
BEN-1
|
1.
|
Mr. Arun
|
10%
|
(60*10%) = 6%
|
No
|
2.
|
Mr. Bijo
|
25%
|
(60*25%) = 15%
|
Yes
|
3.
|
Mrs Chandra
|
40%
|
(60*40%) = 24%
|
Yes
|
Problem:
What if the Company ‘ABC Ltd’ holds 25% shareholding of Company ‘XYZ Ltd’
and Mr. Arun, Mr. Bijo and Mrs. Chandra holds 50%, 30% and 5% shares of Company
‘ABC Ltd’.
Solution: Interest of Mr. Arun, Mr. Bijo and Mrs. Chandra in ‘XYZ
Ltd’ shall be as follow:
S.
No.
|
Shareholders
|
Holdings
|
Actual
Interest in XYZ Ltd
|
BEN-1
|
1.
|
Mr. Arun
|
50%
|
(25*50%) = 12.5%
|
Yes
|
2.
|
Mr. Bijo
|
30%
|
(25*30%) = 7.5%
|
No
|
3.
|
Mrs Chandra
|
5%
|
(25*5%) = 1.25%
|
No
|
Problem:
Mr. Anil is the registered owner of 5,000 shares (Constituting 25% of the
share capital) of Viata Ltd whose beneficial holder is M/s XYZ & Co., a
Partnership Firm. Mr. Anil transfers 500 shares to Mr. Bijo whose beneficial
interest shall lie with M/s BBC & Co., a Partnership Firm in which Mr. X
and Mr. Y are partners sharing profits equally.
Solution: In the instant case there is change in the
beneficial interest of the shares held by Mr. Anil, therefore, declaration as
prescribed u/s 89 shall be given by Mr. Bijo in MGT 4 and M/s BBC & Co., a
Partnership Firm in MGT 5 and thereafter by Viata Ltd in MGT 6. Also, there is
a SBO of more than 10% by the partners Mr. X and Mr. Y and hence, declaration
as prescribed u/s 90 shall be given by Mr. X and Mr. Y in BEN 1 and thereafter
by M/s. Viata Ltd., in BEN 2. Also, M/s. Viata Ltd shall maintain a register of interest declared
by Mr. X and Mr. Y and
changes therein in Form No. BEN-3.
Problem:
Mr. Anil is the registered owner of 9,000 shares (Constituting 90% of the
share capital) of Vista Ltd whose beneficial holder is M/s XYZ & Co., a
Partnership Firm in which Mr. X and Mr. Y are partners sharing profits equally.
Again Mr. Bijo is the registered owner of 1,000 shares of Vista Ltd whose
beneficial holder is M/s XYZ & Co, a Partnership Firm. Now, Mr. Anil
transfers 5000 shares to Mr. Bijo.
Solution: As there is no
change in the beneficial ownership, no declaration is required to be given u.s
89. However, the Share Transfer deed is to be executed and thereafter form SH-4
needs to be sent to the Company which is sufficient to show the change of
registered owners in the register of members. In the instance, as there is SBO,
the initial disclosure as required under Sec. 90 (BEN 1 by Mr. X and Mr. Y, BEN
2 by M/s. Vista Ltd) is required.
Problem: Mr.
Anil beneficially holds Rs. 55,000/-
equity in Viata Ltd (Capital
Structure of the Company: Equity Rs. 2,00,000/-; CCPS
Rs. 3,00,000/- & CCDs Rs. 1,00,000/-). Viata Ltd holds 50% of Equity shares
in Zing Ltd. Whether Mr. Anil can be regarded as SBO for Zing Ltd?
Solution: Mr. Anil’s % of share capital held in Viata Ltd will be
as follows
As per Explanation II of Rule 2 (e) of SBO Rules, instruments in the form
of GDRs, CCDs, CCPs shall be treated as shares. Accordingly,
= Rs. 55,000 / (Equity Rs.
2,00,000/-; CCPS Rs. 3,00,000/- & CCDs Rs. 1,00,000/-)*100
= Rs. 55,000 / 6,00,000*100
= 9.17% and therefore, Mr.
Anil will not be regarded as SBO of Zing Ltd.
Conclusion
[[
A giant step has been taken by the Ministry of Corporate Affairs (MCA)
by, notifying the Companies (SBO) Rules, 2018 along with Section 90 of the
Companies Act, 2013. The main objective behind this step is to eradicate money laundering
and the objective of aforesaid disclosure is to identify the true individual
owners of a company, in case of complex layered structure. As the implications
of the amended section and newly notified rules are quite wide, the companies
have to take utmost care and the compliances of the same has to be ensured in
true letter and sprit.
DISCLAIMER: The information given in this document has been made on the basis of the provisions stated in the Companies (Amendment) Act, 2017 and Companies Act,
2013. It is based on the analysis and interpretation of applicable laws as on
date. The information in this document is for general informational purposes
only and is not a legal advice or a legal opinion. You should seek the advice
of legal counsel of your choice before
acting upon any of the information in this document.
Under no circumstances whatsoever, we are not responsible for any loss, claim,
liability, damage(s) resulting from the use, omission or inability to use the
information provided in the document.
ANALYSIS OF DISCLOSURE OF BENEFICIAL INTEREST
Reviewed by CS DIVYANSHU SAHNI
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