Analysis of SBO (Significant Beneficial Owners) Rules (Applicability, Amendments, E-forms, Definitions, Penal Provisions) By CS Lalit Rajput


 

Attention (Dont’s miss the deadline 31.07.2019):

Form BEN-2 (Return to the Registrar in respect of declaration under Section 90) notified vide the Companies (Significant Beneficial Owners) second Amendment Rules, 2019 dated 1st July 2019 is available for filing purposes now on www.mca.gov.in 

This Form has to be filed within 30 days from the date of deployment of form on MCA Website i.e. (due date is 31.07.2019)

Provisions of Section 90 would not trigger in case of direct holding.

Short Summary for BEN-2:

  1. Indirect Holding is must to file E Form BEN-2
  2. BEN-1 has to be received on or before 08.05.2019
  3. First BEN-1 has to be submitted as per the holding status on 08.02.2019 and then for

any subsequent change, fresh BEN-1 required again.

  1. Due date for filing BEN-2 is 31.07.2019 and form was revised on 17.07.2019.
  2. Applicability : First thing we need to check the holding (for individual – Indirect + Direct and for other members of reporting company direct) if holding is more than 10% - then SBO Provisions are applicable.

Further we have to check the majority of shares held by the individuals in the members of the reporting Company.

  1. Subsidiaries Company are not totally exempted and required to find SBO in their company as Rule 8 of the SBO rules, have granted exemption to subsidiary of Indian Holding Companies which are reporting SBO up to the extent of shares held by those holding companies in subsidiary company.

BO ID:

  1. SBO ID : It is a 10 digits unique identification number of such person (SBO).

The moment eForm BEN-2 has filed, the SBO id gets generated instantly and it will be sent on the email id of the SBO entered in the form.

  • Filing Steps:
  1. Significant Beneficial Owner (SBO) have to file a declaration in Form No. BEN-1 to the reporting company within ninety days from commencement of the Companies (Significant Beneficial Owners) second Amendment Rules, 2019 dated 08.02.2019.

It means BEN-1 should be submitted on or before 09.05.2019 (90 days from the date of commencement 08.02.2019)

  1. BEN-2 has to be filed within 30 days from the date of receipt of declaration in Form BEN-1 (within 30 days from the date of deployment).
  • Introduction:

Ministry of Corporate Affairs, Government of India wide notification dated 08th February, 2019 has amended the Companies (Significant Beneficial Owners) Rules 2018.

These rules may be called the Companies (Significant Beneficial Owners) Amendment Rules, 2019. They shall come into force on the 08th day of February, 2019.

  • Governing Laws and Regulations:
  1. Companies (Significant Beneficial Owners) Rules 2018
  2. Companies (Significant Beneficial Owners) second Amendment Rules, 2019
  3. Section 90 of the Companies Act, 2013
  • Section 90 of the Companies Act 2013:

Section 90(4):

“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 Companies (Significant Beneficial Owners) Rules 2018 and Companies (Significant Beneficial Owners) second Amendment Rules, 2019:

“Upon receipt of declaration under rule 3, the reporting company 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 such declaration by it, along with the fees as prescribed in companies (Registration offices and fees) Rules, 2014.”.

  • Section 90 shall not apply to the Govt. Companies as per MCA Circular no. G.S.R.,163(E) dated 05.06.2015

(Link:http://ebook.mca.gov.in/notificationdetail.aspx?acturl=6CoJDC4uKVUR7C9Fl4rZdatyDbeJTqg3XHmN4i4mFb+v2wWhMvQoFsXKgJTHtRr9VmNjj/XQUFc9vZ6tRKIi2gIhxfNI2SOK)

And only those Government Company’s are exempted which has not committed a default in filing its financial statements under section 137 of the Companies Act 2013 or Annual Return under section 92 of the said Act with the Registrar.

(Notification dated 13.06.2017 http://ebook.mca.gov.in/Default.aspx?page=notification)

  • Important definition:

Section 2

(d) “majority stake” means;-

(i)   holding more than ½ (50%) of the equity share capital in the body corporate; or

(ii)  holding more than ½ (50%) of the voting rights in the body corporate; or

(iii) having the right to receive or participate in more than ½ (50%)  of the distributable dividend or any other distribution by the body corporate;

(f) “reporting company” means a company as defined in section 2(20) of the Act, required to comply with the requirements of section 90 of the Act;

Section 2(20)"company" means a company incorporated under this Act or under any previous company law;

(h) “Significant Beneficial Owner”

In relation to a reporting Company means:

Individual (natural person)  (Section 90(1) acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, namely:-

(i) Holds indirectly / or indirect + direct holdings, not less than 10% of the shares;

(ii)Holds indirectly / or indirect + direct holdings, not less than 10% of the voting rights in

 the shares;

(iii) has right to receive or participate in not less than 10% of the total distributable

 dividend, or any other distribution, in a financial year through indirectly / or indirect +

 direct holdings

(iv) has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings alone:

Direct Holding : If name of the Person is appeared in the Register of Members of the Reporting Company, treated as Direct holding

Indirect Holding: If holding is not direct as mentioned above. Name of the Individual is  not mentioned in the register of the Members of the reporting Company. 

  • Control is defined under Section 2(27) : "control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;
  • Important Provisions:
  1. An Individual shall not be considered to be a significant beneficial owner, if:

He does not hold any right or entitlement indirectly under sub-clauses (i), (ii) or (iii),

  1. Direct Holding: An individual shall be considered to hold a right or entitlement directly in the reporting company, if he satisfies any of the following criteria, namely.––

(i) the shares in the reporting company representing such right or entitlement are held in the name of the individual;

(ii) the individual holds or acquires a beneficial interest in the share of the reporting company under subsection (2) of section 89, and has made a declaration in this regard to the reporting company.

  1. Indirect Holdings: an individual shall be considered to hold a right or entitlement indirectly in the reporting company, if he satisfies any of the following criteria, in respect of a member of the reporting company, namely:- where the member of the reporting company is-

(i) a body corporate (whether incorporated or registered in India or abroad), other than a limited liability partnership, and the individual,––

  • holds majority stake in that member; or
  • holds majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that member;
  • (Majority Stake more than 50% as defined under Section 2(d) of SBO Rules)

(ii) a Hindu Undivided Family (HUF) (through karta), and the individual is the karta of the HUF;

(iii) a partnership entity (through itself or a partner), and the individual,-

(a) is a partner; or

(b) holds majority stake in the body corporate which is a partner of the partnership entity; or

(c) holds majority stake in the ultimate holding company of the body corporate which is a partner

of the partnership entity.

(iv) a trust (through trustee), and the individual,-

(a) is a trustee in case of a discretionary trust or a charitable trust;

(b) is a beneficiary in case of a specific trust;

(c) is the author or settlor in case of a revocable trust.

(v) (a) a pooled investment vehicle; or

      (b) an entity controlled by the pooled investment vehicle,

based in member State of the Financial Action Task Force on Money Laundering and the

regulator of the securities market in such member State is a member of the International Organization of Securities Commissions, and the individual in relation to the pooled investment vehicle,-

(A) is a general partner; or

(B) is an investment manager; or

(C) is a Chief Executive Officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity.

(i) “significant influence” means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies’.

  • Duty of the reporting company (Rule 2A of SBO Rules)
  1. To find out / identify significant beneficial owner as defined under Rule 2(h) and cause such individual to make a declaration in Form No. BEN-1. Declaration should be dated on or before 09.05.2019 (with in 90 days from the date of Commencement of SBO Amendment rules 2019 dated 08.02.2019)
  2. every reporting company shall in all cases where its member (other than an individual), holds not less than ten per cent. of its;-

(a) shares, or

(b) voting rights, or

(c) right to receive or participate in the dividend or any other distribution payable in a financial year,

give notice to such member, seeking information in accordance with section 90 (5), in Form No. BEN-4.

Section 90 (5) of the CA, 2013:

A company shall give notice, in the prescribed manner, to any person (whether or not a member of the company) whom the company knows or has reasonable cause to believe—

(a) to be a significant beneficial owner of the company;

(b) to be having knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge; or

(c) 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.

Form BEN-4 :

http://ebook.mca.gov.in/notificationdetail.aspx?acturl=6CoJDC4uKVUR7C9Fl4rZdatyDbeJTqg3upMWzZ7Ha2MC81G2EhbC/aaxgZtkHkPd

  • Declaration of significant beneficial ownership under

section 90 (Rule 3 of SBO Rules):

  1. On the date of commencement of the Companies (Significant Beneficial Owners) Amendment Rules, 2019 (dated 08.02.2019), every individual who is a significant beneficial owner in a reporting company, shall file a declaration in Form No. BEN-1 to the reporting company within ninety days from such commencement (on or before 09.05.2019 i.e. 90th day from 08.02.2019).
  2. In case Subsequent Acquisition of the title of Significant Beneficial Owner / Any Change therein a declaration in Form No. BEN-1 required to be filed to the reporting company, within 30 days of acquiring such significant beneficial ownership or any change therein.
  • Kindly note that:

Where an individual becomes a significant beneficial owner, 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 days from the date of commencement of said rules, and the period of thirty days for filing will be reckoned accordingly. 

  • Return of significant beneficial owners in shares (Rule 4 of SBO Rules)

Upon receipt of declaration (in form BEN-1) under rule 3, the Reporting Company 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 such declaration by it, along with the fees as prescribed in Companies (Registration offices and fees) Rules, 2014.”.

  • Register of significant beneficial owners (Rule 5 of SBO Rules)

(1) The company shall maintain a register of significant beneficial owners in Form No. BEN-3

(http://ebook.mca.gov.in/notificationdetail.aspx?acturl=6CoJDC4uKVUR7C9Fl4rZdatyDbeJTqg3upMWzZ7Ha2OJgXE6uleJbSvf6C/exYwl).

(2) 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.

  • Notice seeking information about significant beneficial owners (Rule 6 of SBO Rules)

A company shall give notice seeking information in accordance with under  section 90(5)  in Form No. BEN-4

(http://ebook.mca.gov.in/notificationdetail.aspx?acturl=6CoJDC4uKVUR7C9Fl4rZdatyDbeJTqg3upMWzZ7Ha2MC81G2EhbC/aaxgZtkHkPd).

Application to the Tribunal (Rule 7 of SBO Rules)

The reporting company shall apply to the Tribuna:,

(i) where any person fails to give the information required by the notice in Form No. BEN-4, within the time specified therein; or

(ii) where the information given is not satisfactory,

in accordance with sub-section (7) of section 90, for order directing that the shares in question be subject to restrictions, including

(a) restrictions on the transfer of interest attached to the shares in question;

(b) suspension of the right to receive dividend or any other distribution 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]

 

Non-Applicability of the NFRA, Rules to the extent the share of the reporting company is held by: (RULE 8 of SBO Rules)

  1. a) the authority constituted under sub-section (5) of section 125 of the Act – IEPF Authority;

       (b) its holding reporting company:

Provided that the details of such holding reporting company shall be reported in Form No. BEN-2

(c) the Central Government, State Government or any local Authority;                         

(d) (i) a reporting company, or

(ii) a body corporate, or

(iii) an entity,

controlled by the Central Government or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments;

(e) SEBI registered Investment Vehicles such as mutual funds, alternative investment funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (InVITs) regulated by the SEBI,

(f)Investment Vehicles regulated by Reserve Bank of India, or Insurance Regulatory and Development Authority of India, or Pension Fund Regulatory and Development Authority.

  • Penal Provisions

Section 90(10) If any person fails to make a declaration as required under Section 90(1), he shall be punishable with fine which shall not be less than Rs. 1,00,000 but which may extend to Rs. 10,00,000 and where the failure is a continuing one, with a further fine which may extend to Rs. 1000 for every day after the first during which the failure continues.

Section 90(11) If a company, required to maintain register under Section 90(2) and file the information under section 90(4), 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 Rs. 10,00,000 but which may extend to Rs. 50,00,000 and where the failure is a continuing one, with a further fine which may extend to Rs. 1000 for every day after the first during which the failure continues.

Section 90(12) 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.

 

  • Section 447 is for Punishment for Fraud.

Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud 1[involving an amount of at least ten lakh rupees or one per cent. of the turnover of the company, whichever is lower] shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud:

Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.

Provided further that where the fraud involves an amount less than ten lakh rupees or one per cent. of the turnover of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to fifty lakh rupees or with both.

           

 

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