Overview of SBO Rule 2018 Ultimate Beneficial Ownership of Companies By CS Shiriti Kumari


Background

The original Section 90 of the Companies Act 2013 provided for an "investigation of beneficial ownership of shares in certain cases". 

In its original formulation, this section allowed the Centre that there was sufficient reason to do so: 

"To appoint one or more competent persons to investigate and report as to beneficial ownership with regard to any share or class of shares".


But then government amended this section in January this year with the motive to mine information on beneficial ownership of all entities registered with the Registrar of Companies.

  • As per the recent Amendment received from MCA regarding Final SBO Rule hereinafter called as the Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2018 in relation to Significant Beneficial Ownership ('SBO') is designed to bring transparency to the manner in which shares of companies are held.
  • MCA issued this Notification as Corrigendum to the commencement notification of the Companies (Amendment) Act, 2017 to the effect that in MCA’s notification dated June 13, 2018.
  • Section 90 has been notified with the intent of identifying Significant Beneficial Owner in a company. [In this provision, we will discuss various aspects of the provisions dealing with the amended Section 90 and the amended Rules with more clarification.]
  • To bring transparency in corporate holding to the manner in which shares of companies are held, and in compliance with India’s obligations to align its regulatory framework with the recommendations of Financial Action Task Force, an inter-governmental organization has been constituted to formulate policies to combat money laundering and terror financing, the Ministry of Corporate Affairs (MCA) notified on  June13, 2018.
  • The ticking time bomb has jolted industry since it will no longer be able to use the artifice that companies have used till now to mask the ultimate beneficial ownership of a company.
Applicable Section & Rule:

  • Section 90 read with sub-section (1) of section 469 of the Companies Act, 2013 (18 of 2013);
  • Section 89 of the of the Companies Act, 2013; and
  • Companies (Significant Beneficial Owners) Rules, 2018.
Applicable to all Companies:

  • Public Companies
  • Private Companies
  • Listed Companies including WOS
  • Unlisted Companies,
  • Small Companies including OPC (Moreover not required as Sole Member)
  • Large Companies
  • Foreign Listed Companies (Proposed to be exempted but in final Rule withdrew or take away.
Please Note here some Exemption given:

These rules are not made applicable to the holding of shares of companies/body corporate, in the case of pooled investment vehicles/investment funds such as:

  • Mutual Funds,
  • Alternative Investment Funds (AIFs),
  • Real Estate Investment Trusts(REITs) and
  • Infrastructure Investment Trusts (InvITs) regulated under the SEBI Act.
  • The entire provision of Section 89 and 90 shall not be applicable where if beneficial interest holder’s name is borne on the register of members.
We have seen that there is major issue in relation to the “Beneficial Owner (hereafter referred as “BO”) and Significant Beneficial Owner (hereafter referred as “SBO”)”, what are the rights or liabilities of the beneficial owner, what are the legal compliances need to be done for beneficial owner etc.

Therefore, Our endeavour here is to summaries some Important Concepts of SBO Rule.

Some Important Concepts to understand before proceedings:-

Registered Owner: RO

Means 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;

In simple words, this person is not an actual owner of shares. Only his name is entered into the register of members. He is not entitled to the dividend, the officer for the right issue of shares, bonus shares etc. However, this person having voting rights in the Company, Vote on the poll, the name shall be entered in the register of the member, entitled to sign the proxy form, shall be count for the quorum etc.

 

Significant Beneficial Owner: “SBO”: Section 90(1) of the Companies Act, 2013 (‘Act’)

In case of an Individual:

Means beneficial owner holding ultimate “BENEFICIAL INTEREST”* not less than 10% and whose name not entered in the register of members of a Company.

 

*Beneficial InterestSection 89 (10) of the Companies Act, 2013

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;

  • Exercise or cause to be exercised any or all of the rights attached to such share; or
  • Receive or participate in any dividend or other distribution in respect of such share.

Here it means the beneficial owner is entitled to exercise all the rights of the shares like Dividend, right issue, the bonus of shares etc.

Here, “Equity-Like Instruments,” in the form of global depository receipts, compulsorily convertible preference shares or compulsorily convertible debentures shall be treated as ‘shares’ for the purpose of this clause.

 

Beneficial Owner:

Every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, hold beneficial interests, in shares of a company or the right to exercise, or the actual exercising of significant influence or control.

Words and expressions used in these rules but not defined and defined in the Act or in Companies (Specification of Definitions Details) Rules, 2014 shall have the meanings respectively assigned to them in the Act and the said Rules.

 

WHO WILL BE SIGNIFICANT BENEFICIAL OWNERSHIP IN CASE OF “PERSONS OTHER THAN INDIVIDUALS OR NATURAL PERSONS”?

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. The 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;

 
Key Note:

Non-residents also covered under this Rule where natural person be identified in case member is a person resident outside India.
 
What Major Compliances need to be done after amendment of this SBO Rule?

Particulars of Forms

Provision

Filed by

Information Required/Included

Form No. BEN-1

 

Pursuant to section 90(1) of the Companies Act, 2013 and rule 3(1)/3(2)

 

Declaration by the beneficial owner who holds or acquires significant beneficial ownership in shares

 

 

  I.       Particulars of the shares in which significant beneficial interest is held by the person making the declaration;

II.       Particulars of the holder of the significant beneficial interest;

III.       Declaration In pursuance of sub-section (1) of section 90 of the Companies Act 2013,

IV.       Particulars of the registered owner;

V.       Details of the significant beneficial interest:

Ø  Date of creation/acquisition of significant beneficial interest:

Ø  Mode of acquisition of significant beneficial interest: Allotment / Transfer/others, specify

Ø  Nature of the significant beneficial interest:

Ø  Reasons for not registering shares in my name:

Ø  Particulars of the instrument/document, if any, showing the creation of such significant beneficial interest:

Ø  Direct/ Indirect percentage of voting rights:

VI.       Particulars of the person from whom the significant beneficial interest is acquired, if applicable:

Attachments:

(a) Proof of identity of the registered owner and holder of the significant beneficial interest

(b) Instrument/document under which the significant beneficial interest is created/ transferred/changed.

 

TIMELINE FOR FILING DECLARATION OF SIGNIFICANT BENEFICIAL OWNERSHIP IN SHARES UNDER SECTION 90-

(1) Every SIGNIFICANT BENEFICIAL OWNER shall file a declaration in Form No. BEN-1 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. 

(2) Every INDIVIDUAL, who, after the commencement of these rules, acquires significant beneficial ownership in a Company, shall file a declaration in Form No. BEN-1 to the company, within thirty days of acquiring such

Significant beneficial ownership or in case of any change in such ownership.

“This Rule” here means: SBO Rule

Companies (Significant Beneficial Owners) Rules, 2018 called as Final SBO Rule, 2018

Form No. BEN-2

Pursuant to section 90(4) of the Companies Act, 2013 and rule 4

Return to the Registrar in respect of declaration under section 90 received by the company

I. For Significant beneficial ownership or For Change in Significant beneficial ownership;

     II.         

(a) Name of the company;

(b) Registered office address;

(c) E-mail id;

   III.         Particulars of significant beneficial interest:

Attachments:

1. Declaration under section 90 (1);

2. Optional attachments, if any.

RETURN OF SIGNIFICANT BENEFICIAL OWNERS IN SHARES.-

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 a declaration by it, along with the fees as prescribed in Companies (Registration offices and fees) Rules, 2014.

Explanation– The period of thirty days will start from the date on which complete declarations are received by the company.

 

Form no. BEN-3

 

 

 

Pursuant to section 90(2) of the Companies Act, 2013 and Rule 5(1)

 

Register of beneficial owners holding significant beneficial interest

 

      I.         Particulars of the beneficial owner holding significant beneficial interest;

     II.         Particulars of the shares in which significant beneficial interest is held by the beneficial owner;

REGISTER OF SIGNIFICANT BENEFICIAL OWNERS:

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

(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.

Minimum Hour: 2 hours on every working day

Time: as the board may decide

 

Form No.

BEN-4.

 

Pursuant to section 90(5) of the Companies Act, 2013 and rule 6

Notice seeking information about significant beneficial owners.-

Following information required from SBO/any other person within 30 days of the date of this notice in Form No. BEN-4 accordance with the section 90 of the Companies Act, 2013 :

1. Name and Address of the Beneficial Owner (B.O) (i.e. yourself or the significant BO if you are not the

significant BO)

2. PAN of the B.O

3. Name of the person/entity/trust/body etc in whose name the shares/rights are registered/held

4. Folio number/DP and Client ID of the shares/securities

5. Nominal value of the shares/securities

6. Date of acquiring beneficial interest

7. Documents, terms and conditions or any other particulars regarding the BO ownership

8. Reason for not filing a declaration in Form No. BEN-4.

9. Any other information incidental to or relevant or in your possession or knowledge to enable the company to evaluate this matter

TIMELINE FOR REPLY:

The abovementioned particulars should be submitted in writing to the registered address of the company not later than 30 days of the date of this notice in Form No. BEN-4 failing which the company shall proceed in the matter without further notice as per the provisions of the Act.

 
Note:
  • The format of the Forms BEN-1, BEN2, BEN-3 and BEN -4 has been provided in Rule; the electronic version of the same is still awaited. The contents of the forms are same as provided in the draft rules, the only change is in the numbering of the forms.
  • Under the SBO Rules, "each company is required to give notice to any person whom the company knows or has reason to believe is a significant beneficial owner (SBO) or to have been an SBO during the preceding three years and who is not registered as such with the company", says a note prepared by the law firm.
Application to the Tribunal:

The company may apply to the Tribunal in accordance with sub-section (7) of section 90, for an 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 the 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 to the shares in question.

Penal Provisions:

Sub-section (10):

 

If any person fails to make a declaration as required under sub-section (1), he shall be punishable

 

Ø  with fine which shall not be less than one lakh rupees but which may extend to ten lakh rupees and

Ø  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

Sub-section (11):

 

If a company, required to maintain a register under sub-section (2) and file the information under sub-section (4) of section 90, 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.

Sub-section (12):

If any person willfully 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

 

 

Click here to read the disclaimer


Write a Comment