Significant Beneficial Ownership (SBO) Rules By CS Sumit Kumar Singh


WHAT IS BENEFICIAL INTEREST?

For the purpose of section 89 and section 90, 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.

IMP. NOTE-Non applicability of sec. 89 & 90-NOT APPLY to GOVT. COMPANIES.

SECTION 89- DECLARATION IN RESPECT OF BENEFICIAL INTEREST IN ANY SHARE-
89(1)- WHEN- name entered in ROM + NO Beneficial Interest in such shares (REGISTERED OWNER)- THEN- SUCH PERSON shall make a DECLARATION to the COMPANY specifying –(NAME + OTHER PARTICULARS) of the Beneficial Owner.

DECLARATION WHEN AND HOW-

in FORM NO. MGT.4 within 30 days from name being entered in ROM.

89(2) Declaration by BENEFICIAL OWNER-specifying-

(a)  Nature of his interest.

(b) Particulars of RO.

DECLARATION WHEN AND HOW-

in FORM NO. MGT.5 within 30 days after acquiring Beneficial Interest.

-Declaration to be made also after any changes in such beneficial interest in the same manner and time limit.

89(3)- Declaration to be made by RO [as referred in (1)] and BO [as referred in (2)] when any CHANGES occurs in the Beneficial Interest.

WHEN AND HOW-

-within 30 days in FORM NO.MGT.4 by RO.

-within 30 days in FORM NO.MGT.5 by BO.

89(4) Power of CG to make rules.

89(5) Fine for failure to make a declaration, without any reasonable cause, as required under 89(1)/(2)/(3) –

Upto Rs. 50,000 + for continuing failure- upto Rs.1,000 per day.

89(6) Role of Company-

(a) Make a NOTE of such declaration in the ROM.
                                         +
(b) File a return in FORM NO.MGT.6 within 30 days (60 days for SPECIFIED IFSC Public/Private Companies) from the date of receipt of Declaration along with FEES.   [Provided that nothing contained in this rule shall apply to a TRUST which is created to set up- Mutual Fund/Venture Capital Fund/any other fund approved by SEBI]

89(7) Fine for failure to file a return under 89(6)-

On [COMPANY+OD]- Rs. 500 to Rs. 1,000 + for continuing failure- upto Rs.1,000 per day.

89(8) Consequence of Non-declaration-

For BO- NO RIGHT in relation to such shares SHALL BE ENFORCEABLE by him or by any person claiming through him.

89(9) Nothing in this section shall be deemed to prejudice the obligation of a company to pay a dividend to its members under this Act and the said obligation shall, on such payment, stand discharged.]

SECTION-90- REGISTER OF SIGNIFICANT BENEFICIAL OWNERS IN A COMPANY-

Sec.90(1)-

      (a)Every individual, who acting alone or together,

      (b)or through one or more persons or trust, including trust and persons resident outside India,
     
      --holds BENEFICIAL INTEREST, of not less than 25% or such other percentage as may be prescribed (i.e. 10%)
     
      --in SHARES of a company or the right to exercise, or the actual exercising of SIGNIFICANT INFLUENCE or CONTROL over the company (herein referred to as "significant beneficial owner"),
     
      --shall make a DECLARATION to the COMPANY, specifying the nature of his interest and other particulars as prescribed.

HOW, BY WHOM, TO WHOM and WHEN to make DECLARATION-

-HOW-- In FORM NO. BEN-1.

-BY WHOM– SBO.

-TO WHOM– to the COMPANY in which he holds SB ownership.

-WHEN– within 90 days from the commencement of these rules (commenced on -13/06/2018) and within 30 days after any ACQUISITION or CHANGE in SB ownership.

WHAT IS SIGNIFICANT INFLUENCE or CONTROL [sec.2(27)]-

“CONTROL" shall include-

(a) the right to appoint a majority of the directors, or

(b) 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;

WHO IS A SIGNIFICANT BENEFICIAL OWNER (SBO)-

In case of INDIVIDUAL-

means an individual referred to in sec.90(1) (holding ultimate beneficial interest of not less than 10%) read with sec.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 ‘SB ownership' shall be construed accordingly;

[Means 25% in the ACT and 10% in RULES.]

-In the case of persons other than individuals or natural persons-

Where the member is a-

(a) COMPANY- 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 10% share capital of the company or who exercises significant influence or control in the company through other means;

(b) PARTNERSHIP FIRM-  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 10% of the capital or has an entitlement of not less than 10% of profits of the partnership;

(c) where no natural person is identified under (a) or (b), the SBO is the relevant natural person who holds the position of senior managing official;

(d) 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 10% interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership.

For the above purpose-

Instruments in the form of GDR, compulsorily convertible preference shares or compulsorily convertible debentures shall be treated as SHARES.

-90(2) Every company shall maintain a REGISTER of INTEREST declared by individuals under sec.90(1) and changes therein.

REGISTER OF SBO-

-In which form – FORM NO.BEN-3.

-CONTENT--

-name of an individual,

-his date of birth,

-address,

-details of ownership in the company and

-such other details as may be prescribed.

INSPECTION OF REGISTER- [ sec.90(3) ]-

-During business hrs.

-At such a reasonable time of not less than 2 hrs,

-On every WORKING DAY as the board may decide,

-FEES for inspection- as specified by the company but max. Rs. 50 for each inspection. 

-Who can inspect- any MEMBER?

Sec.90(4)- Every COMPANY shall file RETURN of SBO and changes therein with ROC

-RETURN in which form- RETURN IN FORM NO.BEN-2.

WHEN- within 30 days from the date of receipt of a declaration by it + fees.

CONTENT – (same as BEN-3)- names, address, DOB, etc.

Sec.90(5)- 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—

(a) to be an SBO of the company;

(b) to be having knowledge of the identity of an SBO or another person likely to have such knowledge, or

(c) to have been an SBO of the company at any time during the 3 yrs. immediately preceding the date on which the notice is issued,

and who is not registered as an SBO with the company as required under this section?

Sec. 90(6)- The information required by the notice under Sec. 90(5) shall be given by the concerned person within a period not exceeding 30 days of the date of the notice.

Sec.90(7)-  The company shall,—

(a) where that person fails to give the company the information required by the notice within the time specified therein; or

(b) where the information given is not satisfactory,

apply to NCLT within a period of 15 days of the expiry of the period specified in the notice, for an order directing that the shares in question be subject to restrictions.

RESTRICTIONS as to what? (these are also objectives for making an application)

(a) restrictions on the transfer of interest,

(b) suspension of the right to receive dividend,

(c) suspension of voting rights,

(d) any other restriction on all or any of the rights attached with the shares in question.

Sec.90(8)- On any application made under sec. 90(7), the NCLT may, after giving an Opportunity of Being Heard to the parties concerned, make such ORDER within 60 days of receipt of application.

Sec.90(9)- Company or the person aggrieved by NCLT’s order may make an application to the Tribunal for relaxation or lifting of the restrictions placed under sec. 90(8).

Sec.90(10)-  FINE for non declaration u/s 90(1)-

On such person- Min. 1 lac to 10 lacs.  +

For continuing failure, with a further fine upto Rs. 1,000 per day.

Sec.90(11)- FINE for-

(a)Not maintaining register as required u/s90(2).

(b)Not filing a return as reqd. u/s 90(4).

(c)Denying inspection.

FINE on COMPANY and every OD-

Min. 10 lacs to Max. 50 lacs. +

For continuing failure, with a further fine upto Rs. 1,000 per day.

Sec.90(12)-  Punishment for wilfully furnishing any false/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.

Non-applicability of Companies(Significant Beneficial Owners) Rules, 2018-

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

     -Mutual Funds,

     -Alternative Investment Funds (AIFs),

     -Real Estate Investment Trusts(REITs) and 

     -Infrastructure Investment Trusts (lnvlTs) regulated under the SEBI Act.

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