The Ministry of Corporate Affairs has recently notified the eform BEN 2 vide notification dated July 01, 2019, which provides to further amend the provisions of the Companies (Significant Beneficial Owners) Rules, 2018 for the second time. The Companies (Significant Beneficial Owners) Rules, 2018, was previously amended for the first time on February 08, 2019. The Companies (Significant Beneficial Owners) Rules, 2018, was notified by the Central Government on June 14, 2018.
Before an attempt being made to understand the second amendment to The Companies (Significant Beneficial Owners) Rules, 2018, one must understand the following key topics whose knowledge is integral to the understanding of the said amendment.
THE OWNER vs THE BENEFICIAL OWNER
Owner would means one who has dominion of a thing, real or personal, corporeal or incorporeal, which he has the right to enjoy and to do with it as he pleases either to spoil or destroy it as far as the law permits unless he be prevented by some law, agreement or covenants which restrains his right.
Therefore, one can conceive the understanding that, the term Owner???, would include two important aspects, i.e. possession and title plus the benefits out of such possession and title. However, given the fact if there are two persons involved with the first person holding the possession and title of such property Holder??? and the second person deriving the benefits from such property without holding any possession or title of the property Beneficiary ???, the law requires the Beneficiary to inform the respective stakeholder either the government or the Company about such arrangement between the Beneficiary and the Holder.
While making an effort to intimate such difference between the Holder and the Beneficiary, in holding the shares of the Companies registered under the Companies Act, 2013 Section 89 of the Companies Act, 2013 was introduced and notified on April 01, 2014 by the Central Government. Section 89 sub section (1) of the Companies Act, 2013 provides for the substantive law which mandates the Holder to file declaration within such 30 days from the date of entering his name in the Registry of members and in the Form MGT-4 to the Company specifying the name and other particulars of the Beneficiary.�
Section 89 sub section (2), mandates the Beneficiary, to make a declaration to the Company specifying the details of Holder and details of his interest in the share of the Company in Form MGT-5 within 30 days of acquiring the beneficial interest in the share of the Company. The section also caveats the fact that the rights as derived by the Beneficiary by being the beneficiary of the shares, except the receipt of dividend, cannot be enforced unless the form MGT-5 has been deposited with the Company.
The Company upon receipt of declaration from Holder and the Beneficiary in form MGT-4 and form MGT-5 shall make note of the same in register of members and further file Form MGT-6 with the Registrar of Companies within 30 days from the receipt of such declarations.
SIGNIFICANT BENEFICIAL OWNER
The Ministry of Corporate Affairs, in its normal course of action of making transactions transparent and ease of doing business in India, amended the Companies Act, 2013 on January 03, 2018 which provided for several amendments to the parent enactment i.e. the Companies Act, 2013 including an amendment to section 90 of the Companies Act, 2013 and the same being enforced with effect from June 13, 2018.
Section 90 of the Companies Act, 2013, deals with the Register of significant beneficial owners in a Company. The subsection (1) of Section 90 the Companies Act, 2013, makes an attempt to record the names of the Beneficiary who holds certain percentage of shares/ beneficial interest/ control in the Company, which can be seen as a step ahead of the requirement under sub section (2) of Section 89 of the Companies Act, 2013.
A breakup of sub section (1) of the Section 90 of the Companies Act, 2013, which defines a Significant Beneficial Owner??? who is required to make a declaration to the Company, specifying the nature of his interest in the shares of the Company, can be as follows:
[a] Every individual, who;
1] acting alone or together, or
2] through one or more persons or trust, including a trust and persons resident outside India,
[b] holds beneficial interests, of
1] not less than twenty-five per cent. or
2] not less than ten per cent,
in shares of a company or the right to exercise, or the actual exercising of significant influence or control as defined in clause (27) of section 2, over the company.
The section also provides the modus operandi to ascertain the Significant Beneficial Owner, in case the member is a Company or Partnership or Trust.
REGISTER OF SIGNIFICANT BENEFICIAL OWNERS
Every Company shall maintain a register of significant beneficial owners in Form BEN-3, which shall be open for inspection of its members. The Company is also required to file a return in Form BEN-2 with the Registrar of Companies with respect to the declaration as received by the Company from the Significant Beneficial Owner, within 30 days from the date of receipt of declaration by the Company.
PROCEDURE UNDER THE RULES
Every individual who is a Significant Beneficial Owner, as on February 08, 2019 shall provide the information on Form BEN-1 to the Company within 90 days of from February 08, 2019, i.e. May 07, 2019. Upon the receipt of the information by the Company in Form BEN-1 the Company is required to file Form BEN-2 with the Registrar of Companies within 30days from the deployment of the Form BEN-2 , which was deployed on July 01, 2019 and the due date is on July 31, 2019. The Company shall also maintain a register on Form BEN-3 which shall contain the details of the Significant Beneficial Owners. The responsibility of the Company is not limited to receipt of information in Form BEN-1 but also extends to enquiring for the information in Form BEN-4, to such persons where it has reasonable cause to believe such person is a Significant Beneficial Owner.
The Company may also apply to the NCLT if the member refuses to provide the information or the information provided is not satisfactory in BEN-4.
The Companies (Significant Beneficial Owners) Rules, 2018, shall not be applicable if the share are held by;
1. Investor Education and Protection Fund;
2. The holding reporting Company, provided the details of such holding reporting company is filed in Form BEN-2.
3. Central Government or State Government
4. The reporting Company controlled by the Central Government or the State Government.
5. Mutual Funds, Alternative Investment Funds, Real Estate Investment Trusts, Infrastructure Investment Trust, registered with SEBI.
6. lnvestment Vehicles regulated by Reserve Bank of India, or Insurance Regulatory and Development Authority of India, or Pension Fund Regulatory and Development Authority.
Any law without a sanction is no law???, Section 90 provides for the penal provisions for the individual who do not provide the information within the time period and also on the Company which is required to maintain the register under the provisions of the Companies Act, 2013. Any false information provided by the Significant Beneficial Owner, shall also be punished in accordance with section 90 of the Companies Act, 2013.
1 Concise Law Dictionary, P Ramanatha Aiyar’s, 4th edition 2012.
2 Section 89(10) states that Beneficial Interest in a share includes, either 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 any rights attached to such share or (ii) receive any dividend or other distribution in respect of such share.
3 Section 89 sub section (6)
4 Circular dated September 09, 2018