Section 90 of the Companies Act, 2013 deals with the “register of beneficial owners in a company” and it states that the significant beneficial owners are required to make a declaration as to their beneficial interest in the company, the nature of interest held and the period of acquisition of such interest. Section 90 of the Companies Act, 2013 was amended by the Companies (Amendment) Act, 2017 and the amended provision shifts the onus of investigating significant beneficial owners in a company from the Central Government on the individuals who share such beneficial interest to make such declaration to the company. The company must file such declarations with the Registrar of Companies and ensure that such significant beneficial owners have complied with the provisions of the section and maintain a register as to the interest of the significant beneficial owners in the company. The main aim of Section 90 of the Companies Act, 2013 is to lift the corporate veil.
Significant Beneficial Owners – Who Are They?
Section 90(1) of the Companies Act, 2013 defines a Significant Beneficial Owner as any individual who, acting alone/together/through one/more persons or a trust:
- holds the beneficial interest of not less than 25 % or such prescribed percentage in the shares of the company, or
- holds the right to exercise significant influence/control over the company.
However, the Companies (Significant Beneficial Owner) Rules, 2018 also provide insight as to who would be considered significant beneficial owners.
Significant Beneficial Owner is:
- In the case of an individual, every individual who acting alone/together or through one/more persons or a trust:
- Holds indirectly or together with direct holdings less than 10 % of the shares in the company or
- Holds indirectly or together with direct holdings less than 10 percent of the voting rights in the company or
- Through direct or indirect holdings, has the right to receive not less than 10 % of the distributable dividend in a financial year, or
- Has a right to exercise/exercise significant influence/control in the company in any manner other than direct holdings.
- In the case where a member of the
reporting company is a body corporate, an individual is considered to hold a
beneficial right or interest in the reporting company:
- If she holds a majority stake (more than 50%) in the body corporate, or
- If she holds such a majority stake in the holding company of such body corporate.
- In the case where is a member of the reporting company is Hindu Undivided Family if the individual is the Karta of the family.
- In the case where a member of the
reporting company is a partnership firm, an individual is considered to hold a
beneficial right or interest in the reporting company:
- If she is the partner of such a partnership firm, or
- If she holds a majority stake in the body corporate which itself is a partner in the partnership firm, or
- If she holds such majority stake in the holding company of such body corporate which itself is a partner in the partnership firm.
- In the case where a member of the
reporting company is a trust, an individual is considered to hold a beneficial
right or interest in the reporting company:
- If she is the trustee of such a charitable or discretionary trust, or
- If she is a beneficiary in a specific trust, or
- If she is a settlor or author in the trust.
- In the case where is a member of the
reporting company is a PIV or Pooled Investment Vehicle or an entity controlled
by such PIV from a member state of the FATF or Financial Action Task Force and
the regulator of its securities market is a member of the International
Organization of Security Forces, an individual is considered to hold a
beneficial right or interest in the reporting company:
- If she is a general partner of that member, or
- If she is an investment partner of that member, or
- If she is the CEO where the investment manager is a partnership firm or a body corporate.
In other cases, the rules applicable to a body corporate, HUF, partnership firm or trust shall apply. However, the rules fail to mention about the individuals who are to be declared as Significant Beneficial Owners from states not compliant with FATF.
Significant beneficial owners are required to submit form BEN-1 with their declarations as to their beneficial interest to the reporting company.
Duties of the Reporting Company – Section 90 of the Companies Act, 2013
The following are some duties of the Reporting Company under Section 90 of the Companies Act, 2013:
- When the reporting company receives form BEN-1 from the significant beneficial owners, it is to file form BEN-2 and submit it to the Registrar of Companies within thirty days of receipt of such declaration, giving details as to the interest held by the significant beneficial owners.
- Section 90(2) of the Companies Act, 2013 puts an onus on the reporting company to maintain also maintain a register as to the name, date of birth, address, interest held by the significant beneficial owners in the company.
- Section 90(4A) of the Act mandates that the company shall investigate into the significant beneficial owners of the company and make sure that they comply with the provisions of this section.
- Section 90(5) of the Act mandates that the company ought to give the notice to make such a declaration to individuals it believes to be a significant beneficial owner or to one who might have knowledge as to such significant beneficial owner but has not registered as a significant beneficial owner.
Such person receiving a notice under Section 90(5) of the Act is to respond to the same within 30 days of receipt of such notice.
- Where the company does not receive a satisfactory response or any response to the notice within thirty days from the receipt of the notice, the company must apply to the Tribunal within fifteen days of the expiry period in the notice to have the shares of the such significant beneficial owner be restricted with respect to the transfer of shares, suspension of rights attached to such shares and other similar actions.
The Tribunal, after giving the opportunities to the party to be heard, place such restrictions on the shares within sixty days of receipt of the application from the company, if necessary.
Penalties for Non-Compliance under Section 90 of the Companies Act, 2013
Following are some penalties for non-compliance under Section 90 of the Companies Act, 2013:
- If a significant beneficial owner fails to make declarations as mandated under Section 90(1), she shall be liable for a penalty fine of Rs. 50,000/- and in case of continuing failure, there shall be a penalty of Rs. 1000/- for every subsequent day of failure, up to a maximum of Rs. 200000/-.
- If a company, which is required to maintain a register under Section 90(2) or file information under (4) or carry out its obligations under (4A) fails to do so shall pay the penalty up to Rs. 100000/- and in case of continuing failure, there shall be a penalty of Rs. 500/- for every subsequent day of failure, up to a maximum of Rupees.500000/-.
Conclusion
Section 90 of the Companies Act, 2013[1] and the SBO Rules were placed in to remove the corporate veil and unmask the real beneficial owners of the company. The onus is shifted from the Central Government and is placed on the significant beneficial owners and the company to make the necessary declarations or pay the penalty as provided for.
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