Seeking information of Significant Beneficial Ownership

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. Earlier, we discussed Significant Beneficial Interest, declaration, register and return related here and here.  In this post, we will discuss the declaration, register and return of Significant Beneficial Ownership.

DUTY OF REPORTING COMPANY

The Companies (Significant Beneficial Owners) Amendment Rules, 2019 inserted Rule 2A to make a reporting company duty bound for ensuring compliance of these rules. These companies have two duties in addition of filing BEN – 2. These duties are –

• A duty of find out a Significant Beneficial Owner; and
• Duty to seek information.

Duty to find out Significant Beneficial Owner

According to Rule 2A(1), every reporting company shall take necessary steps –

• to find out if there is any individual who is a significant beneficial owner, as defined in clause (h) of rule 2, in relation to that reporting company, and
• if so, identify him and cause such individual to make a declaration in Form No. BEN-1.

Duty to Seek Information

According to Rule 2A(2), every reporting company shall in all cases where its member (other than an individual), holds not less than ten per cent of its;-

(a) shares, or

(b) voting rights, or

(c) right to receive or participate in the dividend or any other distribution payable in a financial year, give notice to such member, seeking information in accordance with subsection (5) of section 90, in Form BEN-4.

NOTICE FOR SEEKING INFORMATION

Subsection (5) of Section 90 of the Companies Act, 2013 as amended empowers the company to give notice for seeking information of Significant Beneficial Ownership.

A company shall give notice, in the prescribed manner, to any person (whether or not a member of the company) whom the company knows or has reasonable cause to believe—

(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.

In continuation of Rule 2A(2) of these rule, Rule 6 cast duty on a (reporting) company to give notice seeking information in accordance with under sub-section (5) of section 90, in Form BEN-4.

The Notice shall be issued for seeking information about a person who believed to be Significant Beneficial Owner but not registered with the company as such. The notice shall be issued to the following person:

• A person is known as a Significant Beneficial Owner but not declared as such;
• A person reasonably believed to be a Significant Beneficial Owner;
• A person having knowledge of the identity of a Significant Beneficial Owner;
• A person likely to have knowledge of the identity of a Significant Beneficial Owner; and
• A person who was a Significant Beneficial Owner at any time during 3 years immediately preceding but not registered as such.

Section 90 (6) cast a duty on the recipient of the notice BEN – 4 to the concerned person within a period not exceeding thirty days of the date of the notice. The use of the term concern person is interesting. However, it should be understood as the company issuing notice BEN – 4.

APPLICATION TO TRIBUNAL

According to Section 90(7),

The company shall,—

(a) where that person fails to give the company the information required by the notice within the time specified therein; or

(b) where the given information is not satisfactory,

apply to the Tribunal within a period of fifteen days of the expiry of the period specified in the notice.

Such application shall be for an order directing that the shares in question be subject to restrictions with regard to the transfer of interest, suspension of all rights attached to the shares and such other matters as may be prescribed.

The company in the application under Section 90((7) read with Rule 7, shall seek an order directing that –

• the shares in question be subject to restrictions with regard to the transfer of interest,
• suspension of all rights attached to the shares; and
• such other matters as may be prescribed:
  • restrictions on the transfer of interest attached to the shares in question;
  • suspension of the right to receive a dividend in relation to the shares in question;
  • suspension of voting rights in relation to the shares in question;
  • any other restriction on all or any of the rights attached with the shares in question.

According to Section 90(8), on the application, the Tribunal may, after giving an opportunity of being heard to the parties concerned, make such order restricting the rights attached with the shares within a period of sixty days of receipt of application.

Application for relaxation or lifting of restrictions

According to section 90(9), the company or the person aggrieved by the order of the Tribunal may make an application to the Tribunal for relaxation or lifting of the restrictions placed.

If no such application has been filed within a period of one year from the date of the order under sub-section (8), such shares shall be transferred, without any restrictions, to the authority constituted under sub-section (5) of section 125, in such manner as may be prescribed.

The manner is prescribed in IEPF Rules discussed elsewhere in this blog.

PUNISHMENT

If any person fails to make a declaration, he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to ten lakh rupees and where the failure is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the failure continues. {Section 90(10)

If any person wilfully furnishes any false or incorrect information or suppresses any material information of which he is aware in the declaration made under this section, he shall be liable to action under section 447. [Section 90(12)}