9 April, 2019
The Companies (Significant Beneficial Owners) Amendment Rules, 2019 (SBO Rules) was notified on 8 February 2019 and is based on feedback received from stakeholders which necessitated that the earlier reporting forms in respect of Section 90 of the Companies Act, 2013 be temporarily withdrawn. These provisions impose an obligation on any Indian company to take necessary steps to trace the ultimate owners. The important provisions of the SBO Rules are listed as under:
- The SBO rules refer to ‘significant beneficial owner’ as an individual who either alone or together with other persons or trusts holds indirectly not less than 10% shares or 10% voting rights or can receive 10% dividend or other distribution or who can or does exercise significant control. The definition of ‘control’ has been made consistent with the Companies Act, 2013.
- The SBO Rules expands the universe of reporting the ultimate owner irrespective of the vehicles through which such ownership is held. Accordingly, significant beneficial owners are required to be reported even where the shareholding is held by a body corpo0rate, an HUF, a partnership, a trust or a pooled investment vehicle (PIV). In each of the above instances, the significant beneficial owners in such cases shall be individuals holding majority stake in companies or a karta of HUF or a partner of partnership firm or trustee / beneficiary or author of a trust or general partner or investment manager of PIV. The term “Majority Stake” has defined to mean more than 50% holding in equity shares or voting rights or rights to dividend or other distribution.
- The current SBO Rules additionally cast a duty upon the company to take steps to find out if there is an owner who is a ‘significant beneficial owner’, identify him and cause such individual to make the required declaration. Without prejudice to the foregoing, the SBO Rules also requires the company to deliver a notice to a member holding not less than ten percent of shares, voting rights or right to participate in dividend or other distribution, seeking information on the beneficial ownership.
- In addition to the requirements on the reporting company, the SBO Rules impose an obligation upon the existing significant beneficial owners to file a declaration with the company in the form BEN 1 within 90 days of commencement i.e. from 8 February 2019.
- The word 'may' in Rule 7 (Application to the Tribunal) has been changed to 'shall' therefore implying that there is now a duty cast upon the company to apply to the National Company Law Tribunal (NCLT) for an order directing that restrictions such as restrictions on transfer of interest, suspension of right to receive dividend and suspension of voting rights be placed on the shares for which the company has requested, but not received the details of the beneficial owner.
- Rule 8 of the SBO Rules exempts the applicability of the SBO Rules to certain entities. This exemption has now been clarified and extended to the shares held by the Investor Education and Protection Fund (IEPF) Authority, the holding company of the reporting company, Central Government (CG), State Government (SG) and Local Authorities (LA) as well as the entities owned by CG/SG/LA and investment vehicles regulated by RBI and IRDA in addition to those regulated by SEBI.
For more information, please contact:
Sameer Sibal, Partner, Jerome Merchant + Partners
sameer.sibal@jmp.law
