As we all the aware that the Amendment to Section 89 and insertion of Section 90 are the key amendments made by the Companies (Amendment) Act, 2017(‘Amendment Act’).
Enforced w.e.f. June 14, 2018 and Companies (Significant Beneficial Owners) Rules, 2018 were notified.
MCA, thereafter, issued General Circular No 7/ 2018 for extending the last date of filing eForm BEN-2 and 08/ 2018 to the effect that the format of declaration to be submitted by Significant Beneficial Owner (SBO) will undergo revision.
MCA on February 8, 2019 amended SBO Rules by amending the definition of significant beneficial owner.
The due date for submission of declaration in Form BEN-1 was 90 days from the said amendment. However, eForm for filing the said declaration with MCA was not made available.
MCA, on July 1, 2019, issued Companies (Significant Beneficial Owners) Second Amendment Rules, 2019 thereby notifying eForm BEN-2 required to be submitted by companies.
What is the law behind the e-Form?
E-Form BEN-2 is required to be filed pursuant to Pursuant to Section 90(4) of the Companies Act, 2013 and Rule 4 of the Companies (Significant Beneficial Owners) Rules 2018, which are reproduced for your reference.
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.
Rule 4:
Upon receipt of declaration under rule 3, the reporting company shall file a return in Form No. BEN-2 with the Registrar in respect of such declaration, within a period of thirty days from the date of receipt of such declaration by it, along with the fees as prescribed in companies (Registration offices and fees) Rules, 2014.”
What is the Purpose of the eForm?
Return to the Registrar in respect of declaration under section 90.
What is the form Processing Type?
The eForm will be auto approved (STP).
what are the Duties of the reporting company?
Every reporting company shall take all the necessary steps to find out if there is any individual who is a significant beneficial owner in its company and seek declaration in Form No. BEN-1 from such person.
Also every reporting company shall in all cases where its member who are not individual and holds not less than 10% of the companies;-
(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,
Then the reporting company shall take information from such members in Form No. BEN-4.
Who is significant beneficial owner?
significant beneficial owner in relation to a reporting company means an individual referred to in subsection (1) of section 90, who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, namely:-
(i) holds indirectly, or together with any direct holdings, not less than ten per cent. of the shares;
(ii) holds indirectly, or together with any direct holdings, not less than ten per cent. of the voting rights in the shares;
(iii) has right to receive or participate in not less than ten per cent. of the total distributable dividend, or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings;
(iv) has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings alone:
What are the significant challenges in identification of SBOs?
1. In identifying the real owner behind companies one may face multiple issues like:
2. Complex ownership structures of the legal entities and Navigating multiple layers of ownership;
3. Legal entities established in high secrecy/ high risk jurisdiction (i.e., Samoa, Cayman Islands, Panama); False accountholder’s declarations on UBOs;
4. Complexity and broadness of the BO data, with global footprint;
5. Non-standard documentation in offshore financial centers (OFCs); Flexible change of ownership in OFCs;
6. Non-cooperation, grudging, or boilerplate disclosure;
7. Nominee directors - that is, where the director is not acting on his own discretion but has been placed as nominee of a shadow director; and such other issues
What are the Declaration of significant beneficial ownership ?
(1) On the date of commencement of the Companies (Significant Beneficial Owners) Amendment Rules, 2019, every individual who is a significant beneficial owner in a reporting company, shall file a declaration in Forrn No. BEN-1to the reporting company within ninety days from such commencement.
(2) Every individual who has subsequently becomes a significant beneficial owner or where his significant beneficial ownership undergoes any change then also he should file a declaration in Form No. BEN-1 to the reporting company. This is to be done within 30 days of such change.
Explanation.- 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.
How to file the Return of significant beneficial owners in shares?
Upon receipt of declaration in Form No. BEN-1, the reporting company shall file a return in Form No. BEN-2 with the Registrar within a period of 30 days from the date of receipt of such declaration by it.
What is ID of Significant Beneficial Owner?
Once the Form BEN-2 is Filled an SBO ID is created. This helps to identify the SBO the next time the filling is done.
What is Register of significant beneficial owners?
The company shall maintain a register of significant beneficial owners in Form No. BEN-3.
The register 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 as may be specified by the company but not exceeding fifty rupees for each inspection.
What is Notice seeking information about significant beneficial owners?
A company also has the right to give notice to seek information from the significant beneficial owners in Form No. BEN-4
Can an Application be made to the Tribunal?
The reporting company cal also apply to the Tribunal,
(i) where any person fails to give the information required by the notice in Form No. BEN-4, within the time specified therein; or
(ii) where the information given is not satisfactory,
Who all are falling under 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 (lnVITs) regulated by the Securities and Exchange Board of India,
(f) lnvestment Vehicles regulated by Reserve Bank of India, or Insurance Regulatory and Development Authority of India, or Pension Fund Regulatory and Development Authority.
What are the consequences of non-filing?
Section 90(11) of the Act, 2013 provides for penal provisions for the failure of the part of the company and every officer in default in complying with the provisions of Section 90(4) i.e. filing of the above return and changes therein with the Registrar with a fine:-
For company and every officer in default: Rs. 10 Lakhs - Rs. 50 Lakhs
For Continuing default: Upto Rs. 1000 for every day after first day of failure.
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