Declaration by Significant Beneficial Owner

The law stated in this post is valid from 8th February 2019. The earlier post on the subject here was valid from 14th June 2018 till 7th February 2019.

Section 90 of the Companies Act 2013 substituted by a new set of law by the Companies Amendment Act, 2017 with effect from 13th June 2018. It is a drastic change to understand and need urgent attention for all companies. Amended Section 90 and rules made thereunder has already been notified with effect from 13th June 2018 and 14th June 2018. However, the Companies Amendment Ordinance, 2018 as well as The Companies Amendment Act, 2019 amended Section 90 with effect from 2nd November 2018.  Thereafter, the Companies (Significant Beneficial Owners) Amendment Rules, 2019 amended the Companies (Significant Beneficial Owners) Rules, 2018 with effect from 8th February 2019. In last post here, we discussed what constitutes Significant Beneficial Ownership under the amended law.  In this post, we will discuss the declaration, register and return of Significant Beneficial Ownership.

REPORTING COMPANY

Reporting company is a company required to comply with the requirements of Section 90 of the Companies Act, 2013. Please note Section 2(20) defines term the company.

DECLARATION BY SIGNIFICANT BENEFICIAL OWNER

As mentioned in the earlier post here, a significant beneficial owner shall make a declaration to the company, specifying the nature of his interest and other particulars, in such manner and within such period of acquisition of the beneficial interest or rights and any change thereof, as may be prescribed.

First and one-time Trigger

According to Rule 3(1), every individual who is a significant beneficial owner in the reporting company on the date of commencement of these amendment rules shall file a declaration in Form BEN-1 to the reporting company within ninety days from the commencement of these rules.

• Such an individual must be a significant beneficial owner in the reporting company on 8^th February 2019;
• Such individual should file BEN – 1 within 90 days with the reporting company – due date as of now will be 8^th May 2019

Earlier dates are now not relevant after this amendment.

On becoming a Significant Beneficial Owner

According to Rule 3 (2), every individual, who, after the commencement of these rules, becomes a significant beneficial owner in the reporting company, shall file a declaration in Form BEN-1 to the reporting company within thirty days of acquiring such significant beneficial ownership or in case of any change in such ownership.

Any change is not defined and/or quantified. All qualitative or quantitative changes need to be declared within 30 days.

Reporting during the transition period

This is good clarification on an interesting interpretation of earlier rule as well as present rules.

According to the explanation to Rule 3(2), any acquisition or change during the transition period of 8^th February 2019 and 8 May 2019 shall be deemed to happened on 8^th May 2019 and shall be reported within 30 days from that day. Accordingly, in such case two BEN – 1 shall be filed – first for declaring position as on 8^th February 2019 and second for declaring position during the period from 8^th February 2019 and 8^th May 2019. The due date for second BEN – 1 in such cases as of now shall be 7^thJune 2019.

The explanation read as under –

Where an individual becomes a significant beneficial owner, or where his significant beneficial ownership undergoes any change, within ninety days of the commencement of the Companies (Significant Beneficial Owners) Amendment Rules, 2019, it shall be deemed that such individual became the significant beneficial owner or any change therein happened on the date of expiry of ninety days from the date of commencement of said rules, and the period of thirty days for filing will be reckoned accordingly.

RETURN OF SIGNIFICANT BENEFICIAL OWNERS

According to Section 90(4), every company shall file a return of significant beneficial owners of the company and changes therein with the Registrar containing names, addresses and other details as may be prescribed within such time, in such form and manner as may be prescribed.

Amended Rule 4, with effect from 8^th February 2019 prescribes Form BEN – 2 for the purpose. Where any declaration under rule 3 is received by the reporting company, it shall file a return in Form BEN-2 with the Registrar in respect of such declaration, within a period of thirty days from the date of receipt of the declaration by it.

• The filing of BEN – 2 will be
• On receipt of Form BEN – 1
• Within 30 days of such receiving.

REGISTER OF SIGNIFICANT BENEFICIAL OWNERS

Section 90(2) Require every company to maintain a register of the interest declared by individuals and changes therein which shall include the name of the individual, his date of birth, address, details of ownership in the company and such other details as may be prescribed.

Rule 5(1) Prescribe Form BEN – 3 for register of the significant beneficial owner.

INSPECTION OF REGISTER

According to Section 90(3) the register of Significant Beneficial Owner shall be open to inspection by any member of the company on payment of such fees as may be prescribed.

Rule 5(2) prescribe that he register of significant beneficial owners shall be open for inspection during business hours, at such reasonable time of not less than two hours, on every working day as the board may decide, by any member of the company on payment of such fee but not exceeding fifty rupees for each inspection.

Actual inspection time of two hours and chargeable fee shall be determined by the company.

Non-Applicability

These rules shall not be made applicable to the extent the share of the reporting company is held by,-

(a) the authority constituted under sub-section (5) of section 125 of the Act;

(b) its holding reporting company:

Provided that the details of such holding reporting company shall be reported in Form No. BEN-2.

(c) the Central Government, State Government or any local Authority;

(d) (i) a reporting company, or

(ii) a body corporate, or

(iii) an entity, controlled by the Central Government or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments;

(e) Securities and Exchange Board of India registered Investment Vehicles such as mutual funds, alternative investment funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (InVITs) regulated by the Securities and Exchange Board of India,

(f)Investment Vehicles regulated by Reserve Bank of India, or Insurance Regulatory and Development Authority of India, or Pension Fund Regulatory and Development Authority.

This is a good and logical list of exemptions. However, an exemption to body corporate may defeat the purpose of this law as we may know which foreign citizen is ultimately holding a significant beneficial interest in an Indian company.

We will discuss the law of duties of a reporting company and the notice seeking information in the next post.