Crucial Step taken by MCA to remove the curtain on SBOs
By Pammy Jaiswal & Richa Gupta (corplaw@vinodkothari.com)
Introduction
Over the past few years, regulatory changes have conspired to re-define and re-examine the corporate structures in order to have an efficient and transparent environment to work in. A very recent and crucial step taken by MCA is with regard to revamping the provisions of section 89 and 90 of the Companies (Amendment) Act, 2017 (‘Amendment Act’). As all the stakeholders were waiting for the clarity to come in by way of rules in this connection, MCA has on 15th February, 2018 come out with the Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2018[1] (hereinafter called as “ Draft SBO Rules’’).
Changes under section 89 and Draft SBO Rules
The major change in section 89, was defining the term ‘significant beneficial owner’ which in itself is a vital in terms interpreting the whole section. The scope of the section has been made very broad by covering all aspects of pledge, proxy, power of attorney executed in relation to shares. This was much needed to catch hold of those behind the veil.
The Draft SBO Rules in this regard are slightly different from the existing rules. While the erstwhile MGT-4 , MGT-5 and MGT-6 are now renamed as BEN-1, BEN-2 and BEN-3 respectively, the contents of the declaration and return are same, however, BEN-3 will be filed by the company within 30 days of receiving complete declarations from both the registered and beneficial owners. This has been mentioned by way of an explanation and is relevant because, reference to section 403 has been removed from this section as well. Therefore, even if the gap between date of receiving declaration and filing return is beyond a period of 30 days due to incomplete information in the in respective declaration of the registered as well as the beneficial holder, it seems that the law will allow putting the date on which complete information received such persons in BEN-3.
Changes under section 90 and Draft SBO Rules
Section 90 has been completely re-vamped under the Amendment Act. Looking at the language of law, the intent is very clear that the individual significant beneficial owner (‘SBO’) has to come out of his hideaway. The onus is on such SBO and person who may have the knowledge about such SBO to disclose the nature and extent of significant interest. The company on which such SBO has significant influence is required to to do (i) maintain register of the interest declared by individuals and changes therein, (ii) file return of SBO to the RoC in BEN-5 and (iii) to ask for information from such person on whom the company has reason to believe to have information on such SBOs.
While the intent of law is to identify the individual being the SBO, the Draft Rules in this connection have the following ambiguities:
- BEN-4 (‘declaration by SBO’) contains a filed for writing the particulars of the SBO, which also has place for writing Corporate Identification Number (‘CIN’) of such SBO, being a company. If the intent was to identify corporate SBO, section 89 has a provision to take care of the same. Hence, having such field in BEN-4 seems to be contradictory to the language of section 90.
- The exemption given vide Rule 8 of the Draft SBO Rules is also not in line with the intent of law. The exemption provides that making declaration and maintaining of register of SBO will not apply where the registered holder is equity listed body corporate or a WoS of such body corporate or a foreign listed company. While we try to understand this exemption, the question that comes in our mind is that are we trying to say that listed body corporates do not have SBOs. Well the answer to this question may or may not be positive. Hence, the idea behind such carve out is vague.
Conclusion
Undoubtedly, the Draft SBO Rules’’ were awaited and while they have come out, the same is surely a stepping stone in implementing the changes under section 89 and 90, however, due to some ambiguities in such rules as discussed above, clarity on the grey areas is still required. We are hopeful that MCA will take care of the unclear portions in the said rules when the final version comes to life.
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[1] http://www.mca.gov.in/Ministry/pdf/DraftRulesBeneficialOwnership_15022018.pdf