COMPANIES (SIGNIFICANT BENEFICIAL OWNERS) RULES, 2018 – AN OVERVIEW

[Mr. M. GOVINDARAJAN]

Section 90

Section 90 of the Companies Act, 2013 (‘Act’ for short) provides for the conduct of investigation of beneficial ownership in certain cases.  The said section was substituted by Companies (Amendment) Act, 2017, dated 03.01.2018.  The newly substituted section came into effect from 13.06.2018.

In exercise of the powers conferred by Section 90 read with sub-section (1) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government made the Companies (Significant Beneficial Owners) Rules, 2018, (‘Rule’ for short) which came into effect from 13.06.2018. 

Non applicability of Rules

These rules are not made applicable to the holding of shares of companies/body corporate, in case of pooled investment vehicles/investment funds such as Mutual Funds, Alterative Investment Funds (AIFs), Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) regulated under SEBI Act.

Significant owner

Rule 2(e) defines the expression ‘significant owner’ as an individual referred to in sub-section (1) of section 90 (holding ultimate beneficial interest of not less than ten per cent.) read with section 89(10), but whose name is not entered in the register of members of a company as the holder of such shares, and the term 'significant beneficial ownership' shall be construed accordingly.

Determination of significant beneficial ownership

The significant beneficial ownership, in case of persons other than individuals or natural persons, shall be determined as under-

• where the member is a company, the 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 trusts, holds not less than ten per cent. share capital of the company or who exercises significant influence or control in the company through other means;
• where the member is a partnership firm, the 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 trusts, holds not less than ten per cent. of capital or has entitlement of not less than ten per cent. of profits of the partnership;
• where no natural person is identified under (i) or (ii), the significant beneficial owner is the relevant natural person who holds the position of senior managing official;
•  where the member is a trust (through trustee), the identification of beneficial owner(s) shall include identification of the author of the trust, the trustee, the beneficiaries with not less than ten per cent. interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership;

Declaration

Section 90 deals with the register of significant owners of beneficial owners in a company.  Section 90(1) provides that 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 25% 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 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.

 The Central Government may prescribe a class or classes of persons who shall not be required to make declaration under section 90(1).

Rule 3(1) provides that every significant beneficial owner shall file a declaration in Form No. BEN-I to the company in which he holds the significant beneficial ownership on the date of commencement of these rules within ninety days from such commencement and within thirty days in case of any change in his significant beneficial ownership.

Rule 3(2) provides that every individual, who, after the commencement of these rules, acquires significant beneficial ownership in a company, shall file a declaration in Form No. BEN-I to the company, within thirty days of acquiring such significant beneficial ownership or in case of any change in such ownership

If any person fails to make a declaration as required he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to ten lakh rupees and where the failure is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the failure continues.

Maintaining register

Section 90(2) provides that every company shall maintain a register of the interest declared by individuals 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.    The Register shall be in Form No. BEN – 3. The register shall be open for inspection during business hours, at such reasonable time of not less than two hours, on every working day as the board may decide, by any member of the company on payment of such fee as may be specified by the company but not exceeding fifty rupees for each inspection.

 If a company, required to maintain register and file the information, fails to do so or denies inspection as provided therein, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than ten lakh rupees but which may extend to fifty lakh rupees and where the failure is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the failure continues.

Return

Section 90(4) provides that 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.

Rule 4 provides that where any declaration under rule 3 is received by the company, it shall file a return in Form No. BEN-2 with the Registrar in respect of such declaration, within a period of thirty days from the date of receipt of declaration by it, along with the fees as prescribed in Companies (Registration offices and fees) Rules, 2014.

Notice

Section 90 (5) provides that a company shall give notice, in Form No. BEN - 4, to any person (whether or not a member of the company) whom the company knows or has reasonable cause to believe-

• to be a significant beneficial owner of the company;
•  to be having knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge; or
• 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.

The information required by the notice shall be given by the concerned person within a period not exceeding thirty days of the date of the notice.

Application to Tribunal

Where that person fails to give the company the information required by the notice within the time specified therein or where the information given is not satisfactory, the company shall apply to the Tribunal within a period of fifteen days of the expiry of the period specified in the notice. The application may be for an order directing that the shares in question be subject to restrictions including-

•  restrictions on the transfer of interest attached to the shares in question;
•  suspension of the right to receive dividend in relation to the shares in question;
• suspension of voting rights in relation to the shares in question;
• any other restriction on all or any of the rights attached with the shares in question

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.

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.