Designated to reveal beneficiary identity: all companies mandated to name one

– MCA requires every company to designate person responsible for providing information with respect to beneficial interest in shares 

– Payal Agarwal, Senior Manager | corplaw@vinodkothari.com 

The concept of “beneficial owner” or BO is well-established under the Companies Act, 2013 by way of section 89 and 90 read with the rules made thereunder. The primary onus of declaration of beneficial interest lies on the person holding such beneficial interest. For the purpose of assigning responsibility to one or more person with respect to the compliance with the said provisions, Rule 9 of the Companies (Management and Administration) Rules, 2014 (“MGT Rules”) has been amended vide the Companies (Management and Administration) (Second Amendment) Rules, 2023 introducing the concept of “designated person” for the purpose of the said section. The amendment has been notified and made applicable from the date of its publication in the official gazette, i.e, 27th October, 2023. 

Functions of a designated person

The concept of “designated person” has been brought in vide sub-rule (4) of Rule 9 of the MGT Rules. It requires “every company” to designate a person to be responsible for “furnishing, and extending co-operation for providing, information to the Registrar or any other authorised officer with respect to beneficial interest in shares of the company.” Therefore, a person, identified as a designated person under this rule, would be expected to be aware of, and therefore, take all reasonable steps to become aware, of the person holding “beneficial interest” in the shares of the company. 

The applicability of the requirement to identify a designated person is not limited only to such companies that have received declarations with respect to “beneficial interest”, but extends to every company. It is upon the ROC/ other authorities to seek information with respect to beneficial interest from any company, and any such information, as and when sought, will be required to be provided by the designated person identified under this rule. 

Who can be a designated person? 

Sub-rule (5) of Rule 9 deals with the person qualified to be a designated person. It requires one of the following to act as a “designated person”: 

1. CS of the company, if the company is required to appoint a CS (as per section 203 of the Act), or 
2. any KMP of the company (as defined u/s 2(51) of the Act), or
3. every director of the company, in case the company does not have a CS or other KMPs. 

Therefore, a company may, acting through its board of directors, preferably through a duly passed board resolution in this regard, designate the CS, or any of the KMPs or directors of the company to act as a designated person. The use of the term “every director” does not imply that all directors shall be identified as “designated person”, rather, it would mean that either of the directors can be designated under the aforesaid rule. 

“Deemed” designated person 

The provisions are applicable immediately, and therefore, till the time a company designates a person for compliance with the aforesaid, the following persons shall be deemed to be designated person: 

1. CS of the company, if the company is required to appoint a CS (as per section 203 of the Act)
2. In case a CS has not been appointed, every Managing Director or Manager of the company, 
3. In the absence of both (a) and (b), every director of the company. 

Disclosure of details of a designated person 

The details of the designated person are required to be disclosed in the annual return. The annual return is an e-form filed with ROC, and the present change would require a modification in the existing format so as to facilitate the provision of such information. Further, since the provisions are applicable from 27th October, 2023, the disclosure should be applicable for the annual return filed for FY 23-24 and onwards. 

Any changes in the designated person is also required to be intimated to the ROC in e-form GNL-2. No timeline has been specified for filing the same, but should be filed within a reasonable period of time. 

The introduction of the concept of “designated person” with respect to the “beneficial interest” in the shares of a company, will have the impact of assigning responsibility and accountability on the designated person with respect to compliance with the provisions of the Act relating to beneficial interest. Recently, many companies have received advisories from the ministry to ensure compliance with the provisions of declaration of beneficial ownership, and the present amendment would act as a “single point assistance” to the authorities in their inspection of companies with respect to compliance with declaration of “beneficial interest”. 

You may also refer to our Snippet and YouTube video

Our other resources on beneficial owners can be accessed here –

1. Registered Owner V. Beneficial Owner – A Curtain raiser
2. SBO Declaration: Whose Responsibility Is It Anyways?
3. MCA revisits SBO Rules
4. Article corner on SBO