Shareholders are owners of the company as they invest money into company and are interested in financial position of the company. Companies Act, 2013 specifies multiple decisions which are to be taken by members in Annual General Meeting (“AGM”) or Extra-ordinary general (“EGM”) meeting either through special resolution or ordinary resolution or any other specified manner.
If majority of shares are held by any person or particular group of persons then such person or group of persons will become deciding authority by using its majority shareholding. Accordingly, recently Ministry of Corporate affairs has prescribed new reporting requirement for shareholders having substantial beneficial ownership.
- BEN 1 – Declaration of significant beneficial ownership in shares
- BEN 2 – Return of significant beneficial owners in shares
- BEN 3 – Register of significant beneficial owner
- BEN 4 – Notice by Companies
Section 90 read with Section 216 of Companies Act, 2013 (“The Act”) empowered central government that it may appoint 2 or more competent persons to investigate and report about significant beneficial ownership with regard to any share or class of shares. Further, provisions of Section 216 (Investigation of Ownership of Company) shall apply for carrying out such investigation of significant beneficial ownership.
In pursuance of power conferred u/s 90, central government provided a very detailed provisions related to significant beneficial ownership vide Companies (Amendment) Act, 2017 effective from 13th June, 2018.
Key Provisions notified related to significant beneficial ownership is as follows:
- Section-90: Register of Significant Beneficial Owners of the company
- The Companies (Significant Beneficial Owners) Amendment Rules,20l9.
- Section 216: Investigation of Ownership of company
A gamut of provisions provided in relation to significant beneficial ownership is as follows:
Table of Content
- 1. Meaning of Significant Beneficial Owner
- 1.1 Shareholding requirement to qualify as “Significant Beneficial Owner” (Rule 2(h) of the rules read with section 90(1))
- 1.2 Meaning of “Direct holding” in company (Explanation II to Rule 2(h) of the Rules)
- 1.3 Meaning of holding “Indirect Interest” in the company (Explanation III to Rule 2(h) of the Rules)
- 1.4 Deeming Fiction for “Acting Together” (Explanation V to Rule 2(h) of the rules)
- 1.5 Meaning of “share” (Explanation to Rule 2(h) of the Rules)
- 1.6 Meaning of “Significant Influence” (Rule 2(i) of the Rules)
- 1.7 Meaning of “Control” (Section 2(27) of the act)
- 2. Declaration by Significant Beneficial Owner (Section 90(1) of the Act read with Rule 3 of the Rules)
- 3. Maintenance of register of significant beneficial ownership by company (Section 90(2) of the act read with Rule 5 of the rules)
- 4. Return filed by company with RoC informing about significant beneficial ownership (Section 90(4) read with Rule 4)
- 5. Information to be furnished in respective forms
- 6. Retrieve information about significant beneficial Owner (Section 90(5), (6), (7) & (9))
- 6.1 Issuance of Notice to seek information about significant beneficial owner (Section 90(5)
- 6.2 Information furnish by concerned person (Section 90(6))
- 6.3 Application to tribunal by company if required information is not furnished (Section 90(7))
- 6.4 Order by Tribunal restricting the rights attached to the shares (Section 90(8))
- 7. Penalty in case of non-filing of BEN-01, BEN-02 & BEN-03 (Section 90(10), (11), (12))
1. Meaning of Significant Beneficial Owner
Before heading towards compliance in relation to significant beneficial ownership, one need to carry out testing that who is significant beneficial owner of the company.
For this identification purpose, definition of “Significant Beneficial Owner” is given under Rule 2(h) of the The Companies (Significant Beneficial Owners) Rules, 2018 (“The Rules”) read with Section 90(1) of the act.
With reference to a reporting entity, Significant beneficial owner means an individual (Acting alone or together or through one or more persons or trust) who possesses one or more of the following rights in reporting entity:
- Holds 10% or more of the shares of reporting company (Directly or Indirectly) or
- Holds 10% or more of the voting rights in the shares of the reporting company (Directly or indirectly) or
- Have right to receive or participate in 10% or more of the total distributable dividend or any other distribution (Directly or indirectly) or
- Has right to exercise or actually exercises significant influence or control in any manner other than through direct holding alone.
Since holding in shares or voting right, can be directly or indirectly, it is important to understand what is the meaning of Direct holding and what is the meaning of indirect holding
1.2 Meaning of “Direct holding” in company (Explanation II to Rule 2(h) of the Rules)
Any individual shall be considered as significant beneficial owner, if he has either of the aforementioned shareholding either directly or indirectly. Accordingly, explanation II to Rule 2(h) defines that a person shall be considered to hold right or entitlement directly in reporting company if he satisfies either of the following criteria, namely:
- Rights or entitlement with respect to shares in the reporting company held in name of individual itself or
- Such individual has acquired beneficial interest in shares of the reporting company u/s 89(2)* of the act and he has filed a declaration to this effect with company.
*Section 89(2) of the act specifies that if any person acquires or holds beneficial interest in shares of company then it shall make a declaration to the company specifying following details:
- Nature of his interest,
- Particulars of the person in whose name the shares are registered in the books of the company and
- such other particulars as may be prescribed.
1.3 Meaning of holding “Indirect Interest” in the company (Explanation III to Rule 2(h) of the Rules)
An individual shall be considered to hold indirect interest in the reporting company if he satisfies either of the following criteria with respect to members of reporting company:
|S No||Reporting Entity||Holding|
|1||If Member of reporting company is a body corporate (whether incorporated or registered in India or Abroad and other than Limited Liability Partnership)||An individual who: |
i. Majority stake in such body corporate or
ii. Holds majority stake in ultimate holding company of such body corporate
|2||If Member of reporting company is a Hindu Undivided Family (“HUF”) and such individual is a karta of such HUF.||An individual who is karta of HUF.|
|3||If member of reporting company is a Partnership Entity||An individual who |
i. Is a partner in such entity or
ii. Holds majority stake in body corporate which is a partner of the such partnership entity
(E.g. M/s XYZ, a partnership entity, holds 8% of shares of M/s ABC Limited. M/s PQR Private Limited is a partner in M/s XYZ. Mr. R holds majority stake in M/s PQR Limited. Accordingly, Mr. R Shall be considered as holding 8% shares indirectly in M/s ABC Limited)
iii. Holds majority stake in the ultimate holding company of the body corporate which is a partner of such partnership entity
|4||If Member of the reporting company is trust||An individual who |
i. is a trustee in case of a discretionary trust or a charitable trust;
ii. is a beneficiary in case of a specific trust;
iii. is the author or settlor in case of a revocable trust.
|5||If Member of the Reporting entity is a pooled investment vehicle or an entity controlled by the pooled Investment Vehicle based in a member state 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 organisation of securities commission#||An individual who|
i. is a general partner; oris iii. an investment manager; or
iii. is a Chief Executive Officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity.
#if such member is not based in mentioned jurisdiction then provisions of earlier mentions catagory (body corporate/partnership entity/HUF/Trust) shall apply.
1.4 Deeming Fiction for “Acting Together” (Explanation V to Rule 2(h) of the rules)
If an individual(s) acting through any person or trust, act with a common intention of exercising any rights or entitlements or control or significant influence over a reporting company as per an agreement (formal or informal) then such individual(s) acting through any person or trust shall be deemed to be ‘acting together’.
For the purpose of the rules, shares shall include an instrument in the form of global depository receipts, compulsorily convertible preference shares or compulsorily convertible debentures.
1.6 Meaning of “Significant Influence” (Rule 2(i) of the Rules)
Significant influence means power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies.
1.7 Meaning of “Control” (Section 2(27) of the act)
“control” shall include below controls exercisable by a person or persons acting individually or in concern, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner
- the right to appoint majority of the directors or
- Right to control the management or policy decisions
2. Declaration by Significant Beneficial Owner (Section 90(1) of the Act read with Rule 3 of the Rules)
Section 90(1) of the Act requires every individual, who is a significant Beneficial owner, to make a declaration in form BEN-1 to the reporting company in below mentioned time limit:
|Nature of Significant beneficial Owner||Due date of filing of BEN-1|
|Every individual who is a significant beneficial owner as on date of commencement of the Companies (Significant Beneficial Owners) Amendment Rules, 2019 (i.e. 8th Feb, 2019)||90 days from date of commencement of such amendment rules (i.e., 11th May, 2019)|
|Every individual who subsequently becomes a significant beneficial owner*||within 30 days of acquiring significant beneficial ownership|
|Evert individual whose significant beneficial ownership undergoes a change*||within 30 days of such change|
* If either of these events occurs within 90 days of the commencement of the Companies (Significant Beneficial Owners) Amendment Rules, 2019, it shall be deemed that such event has happened on the date of expiry of 90 days from the date of commencement of said rules (i.e., 11th May, 2019), and the period of 30 days for filing will be reckoned accordingly.
E.g. Date of acquiring substantial beneficial ownership is 1st April, 2019 which is before expiry of 90 days from date of commencement of said rules (i.e., 11th May, 2019). Accordingly, period of 30 days for filing BEN-1 shall be reckoned from 11th May, 2019.
3. Maintenance of register of significant beneficial ownership by company (Section 90(2) of the act read with Rule 5 of the rules)
Every company shall maintain a register of the interest declared by individuals u/s 90(1) and also changes therein in form No. BEN-3.
3.1 BEN-3 open for inspection (Section 9(3) read with Rule 5 of the rules)
Register in form BEN-03 shall be open for inspection by members on payment of such fee as company may decide by not exceeding INR 50 for each inspection. Register shall be open for inspection for such reasonable time as board may decide but not less then 2 hours.
4. Return filed by company with RoC informing about significant beneficial ownership (Section 90(4) read with Rule 4)
Upon receipt of declaration in form BEN-01, the reporting company shall file a return in form BEN-02 with RoC in respect of such declaration within 30 days from date of receipt of such declaration.
4.1 Extension of due date of filing of BEN-3 (General Circular No. 07/2018)
Due to non availability of form BEN-2 on Ministry of Corporate Affairs (“MCA”) portal, MCA has notified that the time limit for filing of BEN-2 would be 30 days from date of deployment of such form on MCA portal and no additional fee would be applicable if it is filed within 30 days.
5. Information to be furnished in respective forms
5.1 Information to be furnished by Significant Beneficial Owners in form BEN-1
Significant Beneficial owner is required to furnish following information in form BEN-1:
- Purpose of filing the form (Declaration or change in significant beneficial ownership)
- Name of Significant Beneficial Ownership
- Address and Email-ID
- Date of Birth
- Father’s/Mother’s/Husband’s Name
- passport No. (In case of foreign national)
- Nature of indirect holding or exercise of right in the reporting company through member of the reporting company
- Type of Member (Company/ LLP/Any other Body Corporate/HUF/ Partnership Firm/Discretionary Trust/Charitable trust/Specific Trust/Revocable Trust /Pooled Investment vehicle (PIV) / Entity controlled by PIV)
- Corporate Identity number(“CIN”) or Limited Liability Partnership Identification number (LLPIN) or any other registration number as applicable
- Name of the Member
- Nature of indirect holding or exercise of right in the reporting company (By virtue of shares/voting rights in shares/ rights on distributable dividend or any other distribution/ exercise of control/ exercise of significant influence)
- Status of significant beneficial owner in the member of the reporting company (Partner/karta/Trustee/Beneficial etc.)
- In case the member is a partnership firm or LLP, specify whether significant beneficial owner is Partner/ holds majority stake in the body corporate partner/ holds majority stake in the ultimate holding company of the body corporate partner
- In case the member is a company or any other body corporate, specify whether significant beneficial owner holds majority stake in such company or body corporate/ majority stake in the ultimate holding company of such company or body corporate
- Whether Significant Beneficial Owner has any direct holding or right in the reporting company (Yes/No). If yes, details to be entered is By virtue of shares/ voting rights in shares / rights on distributable dividend or any other distribution/ exercise of control/ exercise of significant influence
5.2 Information to be furnished by company in form BEN-2
- Corporate Identification Number (“CIN”) of company
- Name, Address and email id of the company will auto-populate based on CIN
- purpose of filing of form (For declaration of Significant Beneficial Ownership under Section 90 Number of Significant Beneficial Owners for whom the form is being filed / For Change in Significant Beneficial Ownership under Section 90 ID of the Significant Beneficial Owner/ For declaration of holding reporting company CIN of the holding reporting company )
- Number of Members through whom indirect holding or right in reporting company is being exercised
- Details of members
5.3 Information to be maintained in Form BEN-03
- Name of company
- Address of registered office
- particulars of substantial beneficial owner
- Name of the Beneficial Owner
- Address and Email id
- Date of Birth/ Age
- Father’s/ Mother’s/ Spouse’s name
- Passport No.
- Date of declaration under section 90
- Date of cessation
- Date of entry in Register
- Date of filing of BEN-2(SRN wise)
- Any other interest, if any
- Instructions, if any, given by the member
6. Retrieve information about significant beneficial Owner (Section 90(5), (6), (7) & (9))
6.1 Issuance of Notice to seek information about significant beneficial owner (Section 90(5)
A company shall give notice in form BEN-04 to any person, whether he is a member of the company or not, if company has reasonable cause to believe that:
- Such person is significant beneficial owner of the company or
- Such person has knowledge about any other person who is a significant beneficial owner or
- Such person has remained 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 concerned person is not registered as a significant beneficial owner with the company as required under this section.
6.2 Information furnish by concerned person (Section 90(6))
Concerned person is required to furnish information within 30 days from date of notice.
6.3 Application to tribunal by company if required information is not furnished (Section 90(7))
If concerned person fails to provide required information within prescribed time limit or doesn’t furnish information to the satisfaction of company then company shall apply to tribunal within 15 days of expiry of periods specified in notice.
On receipt of application, the tribunal shall give an opportunity of being heard to the concerned person and shall make order restricting the following rights attached to the shares, if required:
- restrictions on the transfer of interest attached to the shares
- suspension of the right to receive dividend or any other distribution in relation to the shares;
- suspension of voting rights in relation to the shares ;
- any other restriction on all or any of the rights attached with the shares
7. Penalty in case of non-filing of BEN-01, BEN-02 & BEN-03 (Section 90(10), (11), (12))
7.1 Penalty on significant Beneficial owner (Non-filing of declaration in form BEN-01)
If any person fails to make a declaration in form BEN-01 then he shall be punishable with imprisonment upto 1 year or with fine of minimum INR 1,00,000 but not exceeding INR 10,00,000 or with both. In case of continuing failure, further fine upto INR 1000 for each day, during which failure continues, will be applicable.
7.2 Penalty on company (Non maintenance of register in form BEN-03 or Non filing of BEN-02)
If a company fails to maintain register of significant beneficial owner in form BEN-03 or fails to furnish BEN-04 then the company and every officer in default shall be punishable with fine of minimum INR 10,00,000 but not exceeding INR 50,00,000. Further, in case of continuing failure, additional fine of INR 1,000 per day will be applicable.
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