The Ministry of Corporate Affairs vide its notification dated February 8, 2019 has further amended the Significant Beneficial Owners (SBO) Rules and the new amended rules are now called as the Companies (Significant Beneficial Owners) Amendment Rules, 2019.
The intention behind the said rules is to identity the real owners behind the complex layers of investment made into the companies by individual or corporate entities.
Effective date of notification: February 8, 2019
Applicability: The said rules are applicable to all the companies incorporated under the Companies act.
Meaning of Significant beneficial owner (SBO): The following will be considered as the SBO of the reporting company-
1) Incase the member is a individual: In relation to a reporting company, SBO means an individual, who 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:
i. holds indirectly, or together with any direct holdings, not less than 10% of shares;
ii. holds indirectly, or together with any direct holdings, not less than 10% of voting rights in the shares;
iii. has right to receive or participate in not less than 10% of total distributable dividend, or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings alone
2) In case the member is a body corporate (whether registered in India or abroad) other than Limited Liability Partnership: The individual who:- a) holds majority stake in that member; or b) holds majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that member.
3) In case the member is a Hindu Undivided Family (HUF)(through Karta):- the Karta of HUF.
4) In case the member is a partnership entity:- the individual who is:-
a) the Partner; or
b) holds majority stake in the body corporate which is 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.
5) In case the member is:-
a) a pooled investment vehicle; or
b) an entity controlled by the pooled investment vehicle, based in member States 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 is:-
• is a general partner; or
• is an investment manager; or
• is a Chief Executive Officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity
INDIRECT HOLDING to be considered in respect of individual member:- The rules put an emphasis on the word “indirect holding” therefore, an individual member who holds shares in his name, on behalf of another person, such individual member should not be considered as the SBO. The person on whose behalf the shares are held is considered the SBO.
“Direct holding” for the purpose of rule will mean any individual holding shares in the reporting company representing such right or entitlement in his/her own name; or the individual holds or acquires a beneficial interest in the share of the reporting company under sub-section (2) of section 89, and has made a declaration in this regard to the reporting company.
Meaning of majority holding with respect to indirect holdings of members that are corporate entity:- “Majority stake” means:-
i) holding more than one-half of the equity share capital in the body corporate; or
ii) holding more than one-half of the voting rights in the body corporate; or
iii) having the right to receive or participate in more than one-half of the distributable dividend or any other distribution by the body corporate
Duty of Reporting Company:- Every company shall take necessary steps to find out:-
1. In case of individual member:- If there is any individual member who will be considered as SBO, cause him to make a declaration of such beneficial ownership in Form BEN 1
2. In case the member is other than individual:- Shall identify such members who hold not less than 10% 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, except to the extent the share of such reporting company is held by:-
• The authority constituted under sub-section (5) of section 125 of the Companies Act i.e IEPF authority;
• It's holding reporting company (Provided the details of such holding reporting company shall be reported in Form No. BEN-2);
• The Central Government, State Government or any Local Authority;
• (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 Government;
• Securities and Exchange Board of India registered Investment Vehicles such as mutual funds, alternative investment funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (InVITs) regulated by the Securities and Exchange Board of India,
• Investment Vehicles regulated by Reserve Bank of India or Insurance Regulatory and Development Authority of India, or Pension Fund Regulatory and Development Authority,
and give notice to such member, seeking information in accordance with sub-section 5 of section 90, in Form No. BEN-4
Duty of SBO: The significant beneficial owner must give a declaration in form BEN-1 to the reporting company within 90 days from the date of the notification i.e. February 8, 2019 for one time reporting and thereafter, if there is any change in significant beneficial ownership, such change must be reported in Form BEN-1 within 30 days from the date of the change
Compliance under the order: The reporting company upon receipt of declaration from significant beneficial owner will have to file a return with MCA in the e-Form BEN-2 within 30 days from the date of receipt of the declaration along with prescribed fees.
Remedies for the reporting company: If a person fails to give the information required by the notice given the reporting company in from BEN-4 within specified time or where the information given is not satisfactory, the reporting company in accordance with sub-section (7) of section 90 of the Companies Act, 2013, can make an application to the Tribunal for an order directing that the shares in question be subject to restrictions, including:-
• Restrictions on transfer of interest attached to shares in question;
• Suspension of the right to receive the dividend or any other distribution in relation to shares in question;
• Suspension of voting rights in relation to the shares in question;
• Any other restriction on all or any of the rights attached to the shares in question