An attempt to eradicate money laundering, identify true owners of firm
Section 90 of the Companies Act, 2013 introduced the concept of ‘Significant Beneficial Interest’ and goes on to talk about ‘filing of returns by the Significant Beneficial Owner of the company’, ‘maintenance of Register of Interest declared by individuals’ and also specifies fines and penalties for non-compliance

Disclosure of Beneficial Interest under Section 89 of the Act

Section 89 deals with ‘Declaration in Respect of Beneficial Interest in any Share’, as per the Section read with the Companies (Management and Administration) Rules, 2014,

1 The registered owner shall make a declaration to the company in form number MGT - 4. (compliance by registered owner)

2 Beneficial owner shall make a declaration to the company in form number  MGT - 5. (Compliance by beneficial owner)

3 If any change occurs in the beneficial interest in such shares, within a period of 30 days of such change, the RO shall make a declaration of the changes to the company in form number MGT – 4 and Beneficial Owner to the company in form number MGT – 5.

4 If any person fails to make the above said declaration, without any reasonable cause, they shall be punishable with fine which may extend to Rs 50,000. In case the failure is continuing one, they will face a further fine which may extend to Rs 1,000 for every day after the first failure.

5 The company shall make note of the above declarations and file the same with the RoC in form number MGT-6 within 30 days from the date of receipt of such declaration. If the company fails to do so, the company and the officer who is in default shall be punishable with fine not less than Rs 500 and can extend up to Rs 1,000. In case the failure is continuing one, they will face a further fine which may extend to Rs 1,000 for every day after the first failure. Also, the companies are exempted from filing beneficial ownership details with RoC (in form number MGT -6) in respect of a trust which is created, to set up a mutual fund or venture capital fund or such other fund as may be approved by the Sebi.

6 The rights in relation to shares shall not be enforceable by Beneficial Owner or by any person claiming through him, if the declaration as aforesaid is not made by the Ben­eficial Owner.

Disclosure of Significant Beneficial Interest (SBI) under Section 90 of the Act

Section 90 is applicable to every individual significant beneficial owners holding the SBI as defined above. As per the Section 90 read with the companies (SBO) rules, 2018,

1 SBO shall file a declaration in form no. BEN-I to the company in which he holds the SBI as on June13, 2018, within 90 days from the commencement date (i.e by September 12, 2018) and within 30 days in case of any change in the SBI.

2 Every individual who acquires SBI after June13, 2018, shall file a declaration in form no. BEN-I to the company within 30 days of acquiring the SBI or in case of any change in such ownership.

3 Every company shall file a return of SBO of the company and the changes therein in form no. BEN-2 with the registrar (RoC) within a period of 30 days from the date of receipt of declaration by it.

4 Every company shall maintain a register of interest declared by individuals and changes therein in form no. BEN-3. The register shall be open for inspection by any member of the company on payment of fees not exceeding Rs 50 for not less than 2 hours during business hours on every working day as the board may decide.

5 The company has the power to give notice in form no. BEN-4 to any person, whether or not a member, whom the company knows or has reasonable cause to believe –

*to be a significant beneficial owner of the company;

*to be having knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge; or

*to have been a significant beneficial owner of the company at any time during the 3 years immediately preceding the date on which the notice is issued, and who is not registered as a significant beneficial owner with the company as required under this section.

6 The information required by the notice shall be given by the person concerned within a period of 30 days from the date of the notice. If a person fails to give the information required by the notice or where the information given is not satisfactory, within a period of 15 days of the expiry of the period specified in the notice, the company shall apply to the tribunal. The company can seek an order from the tribunal, directing:

*Restrictions on the transfer of interest attached to the shares in question;

*Suspension of the right to receive dividend in relation to the 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 with the shares in question

7 The tribunal may, after giving an opportunity of being heard, make an order restricting the rights attached with the shares within a period of 60 days of the receipt of application.

8 If any person fails to make a declaration, he shall be punishable with fine which shall not be less than 1 lakh rupees but which may extend to Rs10 lakh. In case the failure is continuing one, a further fine which may extend to Rs 1,000 for every day after first during which failure continues.

9 If a company fails to maintain a register or fails to file a return or denies inspection as per this section, the company and every officer of the company who is in default shall be punishable with the fine which shall not be less than Rs10 lakh. In case the failure is continuing one, a further fine which may extend to Rs 1,000 for every day after first during which failure continues.

10 If any person wilfully 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.

Exemptions from Declaring BI (MCA Notification & Rule 8 of SBO Rules)

First thing to note, Notification GSR 463(E) dated June 5, 2015 completely exempts government companies from applicability of Sec. 89 and Sec. 90 of the Act. Further, these SBO rules are not applicable for the holding of shares of companies/body corporates by pooled investment vehicles/investment funds such as mutual funds, alternative investment funds, real estate investment trusts and infrastructure investment trusts regulated under SEBI Act.

For example, alternative investment funds holds 50 per cent of shares in Zing Ltd and Anil holds 25 per cent in AIF. In this case, there is a clear exemption to pooled investments under Rule 8 and hence, concept of SBO and disclosures are not applicable. A giant step has been taken by the ministry of corporate affairs (MCA) by, notifying the Companies (SBO) Rules, 2018 along with Section 90 of the Companies Act, 2013. The main objective behind this step is to eradicate money laundering and the objective of aforesaid disclosure is to identify the true individual owners of a company, in case of complex layered structure. As the implications of the amended section and newly notified rules are quite wide, the companies have to take utmost care and the compliances of the same has to be ensured in true letter and spirit.

(Contributed by P Muthukumaran and Associates, which is a practising firm of company secretaries)