MCA gears up for curtain raiser of SBO

Issues draft rules on Section 89 and 90

CS Vinita Nair, corplaw@vinodkothari.com

Amendment to Section 89 and 90 is one of the key amendments proposed in Companies (Amendment) Act, 2017 (Amendment Act). While, the Amendment Act is being enforced in phases, stakeholders have been awaiting the draft rules in relation to Significant Beneficial Ownership (SBO). MCA on 15.02.2018 issued draft Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2018[1] which is open for public comments till 07.03.2018.

Section 89

The provisions of draft rules and Forms/ e-Form in relation to Section 89 are similar to the existing provisions. Form BEN-1, 2 and 3 are similar to MGT-4, 5 and 6. However, meaning of beneficial interest as inserted by way of sub-section (10) of Section 90[2] is the major change. The meaning encompasses every possible way of attaining beneficial interest and consequentially brings pledge, proxy, power of attorney executed in relation to such shares within its ambit. Therefore, while the forms and procedure remain same, there is a need to re-assess by those holding such rights to make a declaration. ‘Nature of beneficial interest’ is the only additional field which did not appear in erstwhile forms.

Section 90

This is one of the most onerous provision rolled out by MCA. The purpose of this section is to ask companies ‘Parde ke peeche kaun hai? Saamne aao!’. The onus of ensuring compliance is on the companies as they have to seek information from the person whom the company knows or has reasonable cause to believe to be:

(a) to be a significant beneficial owner of the company;

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

(c) to have been a significant beneficial owner of the company at any time during the three 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.

Format of Form/ e-Form

Contents of BEN-4

SBO shall be required to disclose the nature of their interest and other particulars as given in BEN-4 within 30 days of commencement of these rules. Thereafter, on acquiring significant beneficial interest or any change in the interest already acquired.

Quantum of change triggering disclosure requirement has not been defined. Considering similar disclosure requirement for disclosing change under SAST, LODR, this can also be pegged at             +/- 2% from last disclosure.

Several fields similar to BEN-1. However, direct/ indirect percentage of voting rights is required to be disclosed. Reason for not registering in the name of such individual is also required to be disclosed. Particulars of the instrument/document, if any, showing the creation of such significant beneficial interest, also to be provided.

Contents of BEN-5

Similar to BEN-3 (current MGT-6) as this will be an e-Form for filing with MCA by the companies receiving declaration.

Contents of BEN-6

Records the details provided vide BEN-4. Additionally, following is to be specified:

• Amount of guarantee, if any;
• Any other interest, if any;
• Instructions, if any, given by the member.

Contents of BEN-7

Format of notice that the Company on the individuals based on the premise stated in (a), (b) and (c) above. It also includes informing reason for not filing declaration in Form No. BEN-4.

Failure to inform within 30 days of the date of notice, the Company can proceed in the matter as per provisions of Act without further notice.

Unclear exemption

Draft Rule 8 provides that following requirement shall not apply to where the registered owner is a body corporate whose equity shares are listed on any stock exchange or is a wholly-owned subsidiary of such body corporate. (Foreign listed companies should also be exempted.)

Rule 5: Declaration of significant beneficial interest in shares under section 90.

Rule 6: Return of significant beneficial interest in shares.

Rule 7: Register of significant beneficial owners

Firstly, the requirement of compliance under this section is mandated to ascertain the name of the individual who is an SBO and not registered owner. Secondly, the intent of proposing to exempt equity listed entity and foreign listed company (no such term in Act, 2013) is not clear.

Conclusion

While the rules and forms seem simple and easy to understand, the real test will be for the companies to ensure compliance of the same. It will be interesting to witness how the final rules shapes up.

See other articles on Companies (Amendment) Act, 2017 on

http://vinodkothari.com/blog/category/corporate-laws/companies-amendment-act-2017/

[1] http://www.mca.gov.in/Ministry/pdf/DraftRulesBeneficialOwnership_15022018.pdf

[2] beneficial interest in a share includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to—

(i) exercise or cause to be exercised any or all of the rights attached to such share; or

(ii) receive or participate in any dividend or other distribution in respect of such share.”.