In accordance with the Ministry of Corporate Affairs’ (MCA) drive to instill broader comprehension and thorough compliance with the provisions concerning Significant Beneficial Ownership stated in section 90 of the Companies Act, 2013 and the accompanying Companies (Significant Beneficial Owners) Rules, 2018, the Institute of Chartered Accountants of India (ICAI) has also urged its members to fulfill these regulatory obligations rigorously.
Simultaneously, while promoting adherence to the stipulations involving Significant Beneficial Ownership within businesses, the ICAI also encouraged members to promptly submit any pending forms without hesitation. If the members have not yet filed these forms, they are recommended to do so immediately to avoid potential legal repercussions for non-compliance.
Echoing the tenets of Section 90 and the related applicable rules, the ICAI reaffirmed and provided these regulations for its members’ easy reference. In doing so, the institute aims to not only maintain the legal integrity of the corporate sector but also ensure the responsibility of its members towards the larger financial ecosystem. It is a reminder about the critical need for transparency to uphold the ethical norms of corporate governance.
Compliance and Disclosure Requirements
Under the Companies Act 2013 and Companies (Significant Beneficial Owners) Rules, 2018, individuals holding at least 10% beneficial interests in a company, or the right to exercise significant influence or control, must declare this to the company in e-form BEN-1 within 90 days from the commencement of the rules. Subsequent acquisitions or changes in ownership must be declared within 30 days.
Significant Beneficial Owner refers to an individual who, either alone or with others, indirectly or directly:
i) Holds at least 10% of the shares;
ii) Holds at least 10% of the voting rights in shares;
iii) Receives or participates in at least 10% of the total distributable dividend or other distributions in a financial year; or
iv) Exercises significant influence or control in any way other than direct holdings.
A reporting company, as defined in the rules, is required to comply with the requirements of Section 90 of the Companies Act 2013.
Requirements for Maintaining Records and Reporting Significant Beneficial Ownership
Section 90(2) and 90(3) of the Companies Act, 2013 read with Rule 5 of the Companies (Significant Beneficial Owners) Rules, 2018 require companies to maintain a register of significant beneficial owners (SBOs) in e-form BEN 3, open for inspection as defined. Additionally, upon receiving a declaration (e-form BEN-1) under Rule 3, companies must file a return of SBOs (e-form BEN-2) with the Registrar within 30 days, reporting all details and changes, accompanied by the fees specified in the Companies (Registration Offices and Fees) Rules, 2014.
Guidelines for Submission of SBO Declaration
Section 90(4A) of the Companies Act, 2013 mandates every company to identify any Significant Beneficial Owners (SBOs) linked with it and ensure their compliance with these regulations. As an addition, Rule 2A of the Companies (Significant Beneficial Owners) Rules, 2018 requires a company to actively investigate to find, identify and ensure such SBOs submit a declaration in e-form BEN-1.
Notice by Company to Persons considered as SBO
Under Sections 90(5) and 90(6) of the Companies Act, 2013 and Rule 6 of Companies (Significant Beneficial Owners) Rules, 2018, an obligation is imposed on the company to give notice to any person who is, or is believed to be, a significant beneficial owner (SBO) of the company. This also includes those who possess information regarding the identity of an SBO, or who were significant beneficial owners at any time in the past three years but are currently not registered as SBOs with the company.
The notice should be issued in the prescribed BEN-4 format. The individuals who receive the notice have an obligation to provide the necessary information within 30 days from the issue date of the said notice.
Application to Tribunal for SBO Non-Information
According to Section 90(7) of the Companies Act, 2013 and Rule 7 of Companies (Significant Beneficial Owners) Rules, 2018(7), if a person fails to provide satisfactory information within the specified time, the reporting company must apply to the Tribunal within 15 days for an order. This order may impose restrictions on the shares in question, including transfer limitations, suspension of dividend and distribution rights, suspension of voting rights, and any other necessary restrictions on the shares-related rights.
Order of Tribunal and Appeal
In conjunction with any application made under section 90(7) of Companies Act, 2013, the Tribunal may, after considering all involved parties, make an order to limit the rights attached to the shares within 60 days of application receiving or during another prescribed period. Further, a company or any person impacted by the Tribunal’s order can request for easing or removal of restrictions under section 90(8) of Companies Act, 2013. This request must be filed within one year from the date of order, however, after that period, the shares in question will be handed over without any restrictions to the authority instituted under Section 125 of Companies Act, 2013.
Penal Provisions for Non-compliance by SBOs, Companies and Defaulting Officers
If a person fails to submit the required declaration (e-form BEN-1) under section 90(1) of the Companies Act, 2013, they will face a penalty of Rs 50,000. Should the failure persist, an additional penalty of Rs 1,000 per day will be applied, with a maximum cap of Rs 200,000 under Section 90(10) of the Companies Act, 2013.
Further, a company that fails to maintain the register as prescribed in Section 90(2), file the requisite information under Section 90(4), or take necessary actions under Section 90(4), is liable to a penalty under Section 90(11) of the Companies Act, 2013:
i) An initial penalty of Rs 100,000.
ii) An additional penalty of Rs 500 per day for continued failure, capped at Rs 500,000.
Furthermore, any defaulting officer within the company:
i) Faces a penalty of Rs 25,000.
ii) Will be charged an additional Rs 200 per day for continued default, capped at Rs 100,000.
Besides, Section 90(12) of the Companies Act, 2013 states that a person who knowingly provides false or incorrect information, or hides any essential information in their declaration will be subject to the penalties detailed in section 447 of the same Act.
Exemption from SBO Rules
Rule 8 of the Companies (Significant Beneficial Owners) Rules, 2018 specifies certain types of companies to which the rules do not apply.
ICAI Announcement dated 18/10/2023: Sensitization of Companies to abide the provisions of Section 90 of the Companies Act, 2013 read with Rules thereunder relating to Significant Beneficial Ownership