Return to the Registrar in respect of declaration u/s 90 of Companies Act

Introduction:

In accordance with Section 90 of the Companies Act, 2013, a company had to submit a form called BEN-2 to the Registrar of Companies as a declaration. This form involves the important beneficial owners of the company who renounce or disclose their rights and interests in the company through their share capital and voting rights. In this sense, a final beneficiary is defined as a Significant Beneficial Owner of the company that owns more than 10% of the share capital or voting rights of the company. This must be done at least 30 days after obtaining said interest from the company.

Section 90(1) of the Companies Act, 2013, a Significant Beneficial Owner (SBO) simply refers to a person who owns and controls a business in the following ways –

1. Owning shares or voting rights, or having a significant impact that exceeds 10% of the total number of shares or rights;
2. He either owns or exercises directly or indirectly through his relatives or organizations that have considerable influence;

It is crucial to observe that the SBO will only be an individual (resident or non-resident; whether a member of the corporation or not) and not any other person, for example, a public company, a corporation, a trust, a fund, etc.

Laws regulating the Form BEN-2

E-form BEN-2 must be submitted in consonance with Section 90(4) of the Companies Act, 2013 and Rule 4 of the Companies (Significant Beneficial Owners) Rules, 2018. Section 90 of the Companies Act, 2013 is related to the investigation of Significant Beneficial Ownership of a company’s shares, with effect from April 1^st, 2014. However, when the entire section was superseded and a new Section 90 was introduced through the Companies (Amendment) Act, 2017, that section came into the spotlight and was made applicable with effect from June 13^th, 2018. The Companies (Significant Beneficial Owners) Rules, 2018 were also published on June 14^th, 2018. At the same time, forms BEN-1 to BEN-4 were introduced and further revised on February 8^th, 2019, and July 1^st, 2019.

Section 90(4) of the Companies Act, 2013 states that each corporation must submit to the Registrar the declaration form of the significant beneficial owners of the company and its changes, including the name, address, and other detailed information that may be specified form and method within the specified time.

Rule 4 of the Companies (Significant Beneficial Owners) Rules, 2018 states that after receiving the declaration stipulated in Rule 3, the reporting corporation must, within 30 days following the date of receipt of the said declaration, send the BEN-2 declaration form to the Registrar, together with the fee corresponding to the Companies (Registration Offices and Fees) Rules, 2014.

Section 90 of the Companies Act, 2013 provides the provision for Registration of Significant Beneficial Owners in a company. Summarizing the provision, we could explain the necessary steps that shall be taken by the Reporting Company to identify SBO –

In the case of non-individual members who are holding shares or voting rights of not less than 10% are required to fill the Form BEN-4 giving the notice to ask for important information to identify the SBO. Depending on such information, the SBO is either identified or not identified. After such identification, the individual is required to file a declaration in Form BEN-1. On receiving the declaration, the company shall submit Form BEN-2 with the Registrar. The company shall also file Form BEN-1 whenever there is a change in the SBO (Significant Beneficial Ownership) of an individual. It shall also maintain a Register consisting of all such details and the changes made in Form BEN-3. However, if the individual provides inadequate information, then the company shall ask the Tribunal to put restrictions on such exercises.

In the case of people, irrespective of whether they are members or not, the entire procedure will be the same as mentioned above. The only requirement here is that the company should believe or should have the rational cause to believe that the person is a significant beneficial owner or he has information about the same.

Illustration on the requirement of filing Form BEN-1 – Suppose Mr. Anand, an individual, holds 90% of shares in LM PVT LTD and Mr. Barun, another individual, also holds 90% of shares in OP PVT LTD. Mr. B also directly holds 10% shares of TBD PVT LTD. The two companies, i.e., LM PVT LTD and OP PVT LTD hold 40% and 25% of shares in TBD PVT LTD respectively.

Mr. Anand (90*40%) = 36% this is the indirect shareholding by him. As he holds a total of 36% shares indirectly through LM PVT LTD in TBD PVT LTD, which is more than 10% of the total shareholding of TBD PVT LTD, thus he must file BEN-1 with TBD PVT LTD.

Mr. Barun (90*25%) + 10% = 32.5% is the indirect and direct shareholding by Mr. Barun. As he holds a total of 32.5% shares in TBD PVT LTD, i.e., 10% direct holding and 22.5 indirectly (through OP PVT LTD) which is more than 10% of the total shareholding of TBD PVT LTD, thus he shall also be required to file BEN-1 with TBD PVT LTD.

Another illustration where, Mr. Prakash and Mr. Sumit has shareholdings of 60% and 40% respectively in ABC Inc., which is a foreign company. ABC Inc. has a direct shareholding in TRP PVT LTD.

If we calculate, Mr. Prakash has a total of 42.6% of the indirect shareholding in TRP PVT LTD (60*71%), through ABC Inc., the foreign holding company of TRP PVT LTD, which is more than 10% of the total shareholding of TRP PVT LTD, thus, requiring him to file BEN-1 with TRP PVT LTD. Mr. Sumit, on the other hand, shall not be required to file Form BEN-1 with TRP PVT LTD, because he does not hold the majority stake in ABC Inc., and there is no direct and indirect holding of Mr. Sumit in TRP PVT LTD.

After filing the Form BEN-1 the procedure mentioned above will then be followed accordingly.

Objectives of the e-Form

The main objective of this form is to Return to the Registrar in respect of declaration under Section 90 along with:

1. a statement of individuals having beneficial ownership;
2. statement on any change in the beneficial owner;
3. as a way of announcing the reporting company CIN;
4. enumerating the number of members having direct or indirect rights in the company; and
5. detailed information of all such members.

Information to be filled in Form BEN-2

The following information is required to be entered in form BEN-2:

1. Corporate Identification Number (CIN) of the Company;
2. Registered Name of the Company;
3. Company’s Email ID;
4. Registered Office Address of the Company;
5. The purpose for filling the form:
   • to announce the significant beneficial ownership in the company;
   • report any change in the significant beneficial ownership in the company; or
   • to announce the CIN of the holding reporting company;
6. The form requires that the identification of the number of members through which any participation or indirect rights in the reporting company are exercised;
7. It also requires the disclosure of detailed information about the member of that share, i.e., how the member owns that share indirectly or in conjunction with any direct holding.
8. The way in which a member holds these shares can be done through one or more of the factors mentioned as follows:
   • ownership of shares;
   • voting rights in shares;
   • rights to distributable dividends or other distributions;
   • due to exercise of control;
   • due to exercise of significant influence.
9. The following basic information of the members are needed –
   • type of member;
   • name of the member;
   • Corporate Identification Number (CIN) or Foreign Company Registration (FCRN) or Limited Liability Partnership Identification Number (LLPIN) or any such registration number of the member;
   • Address of the member;
   • Email ID of the member;
   • Date of entry of name in the register of members as per Section 88[1].
10. The status of the Significant Beneficial Owner (SBO);
11. The form also requires the disclosure of whether the SBO owns shares in the reporting company or the Ultimate Holding company of the reporting company member, as well as the CIN or FCRN or other registration numbers of that company and the name of the last holding company;
12. Details of the SBO, whether it is a member’s partner or has a majority share in the partner entity or has a majority share in the final holding company of the member entity, as well as the CIN or FCRN or any registration number of this type of company and the name of the joint-stock company or legal entity in the end;
13. Details of the Significant Beneficial Owner must include – name; father’s name; date of birth; nationality; Income Tax Personal Identification Number (PAN); passport number; address; email ID of the SBO; date of acquiring such significant beneficial interest; date of receipt of the declaration by the company in form BEN-1;
14. The statement of form BEN-1 and the agreement supporting the exercise of control and significant influence (if applicable) are annexes that will be included in this form;
15. A resolution passed by the Board of Directors authorizing any person to sign and submit the form;
16. This form is digitally signed by the authorized person.

After receiving the declaration from the beneficial owner of the form BEN-1, the company must file a declaration using the BEN-2 form with the fees according to the Companies (Registration Offices and Fees) Rules 2014, with the Registrar within 30 days from the date of receipt of form BEN-1.

Non-compliance and its Repercussions

Section 90(11) of the Companies Act, 2013 provides penalties for the company and its officers for failure to comply with the provisions with respect to submission of the form provided in Section 90(4) of the Act[2] as follows –

1. For company and every officer in default – Rs.10 lakhs – Rs.50 lakhs;
2. For continuing default – Up to Rs.1000 for every day after the first day of failure

Fees Applicable

Fee Rules – the normal and additional fees for the return to the Registrar in respect of declaration under Section 90[3], are subjected to The Companies (Registration of Offices and Fees) Rules, 2014. The event date being the date of receipt of the oldest declaration with a time limit of 30 days from the date of receipt of the oldest declaration or 30 days from the date of deployment of form, whichever is later. Fees payable may change in accordance with the Companies Act or any rule or regulation or notice issued under it.

i) The fee applicable to this form by the Registrar of Companies will depend on the authorized capital of the particular company, as shown below:

Nominal Share Capital	Fee applicable
Less than 1,00,000	Rs.200
1,00,000 to 4,99,999	Rs.300
5,00,000 to 24,99,999	Rs.400
25,00,000 to 99,99,999	Rs.500
1,00,00,000 or more	Rs.600

ii) Fee for filing e-form or documents in case the company does not have share capital:

Fee applicable

Rs.200

Additional Fee Rules

Period of Delays	All forms
Up to 30 days	2 times of normal fees
More than 30 days and up to 60 days	4 times of normal fees
More than 60 days and up to 90 days	6 times of normal fees
More than 90 days and up to 180 days	10 times of normal fees
More than 180 days	12 times of normal fees

Conclusion

We are all aware of the fact that the proposed amendments to Section 89 and insertion of Section 90 are the major changes to the Companies (Amendment) Act, 2017 which was administered with effect from June 14^th, 2018, and Companies (Significant Beneficial Owners) Rules, 2018 were notified. Subsequently, the Ministry of Corporate Affairs (MCA) issued circular no. 7/2018, which extended the final submission date of eForm BEN-2 and 08/2018 in order to review the filling format submitted by the Significant Beneficial Owner (SBO). MCA revised the SBO rules on February 8^th, 2019, and revised the definition of significant beneficial owners. The deadline for filing the declaration on the BEN-1 form is 90 days from the above-mentioned modification date. However, the eForm for filing the said declaration with the MCA has not been provided. On July 1^st, 2019, MCA released its 2019 Second Amendment Rules, informing the eForm BEN-2 must be filed. However, the fee structure may change in pursuance of the Act or any rule or regulation made thereafter. The eForm will be auto-approved (STP). SRN will be generated on successful submission of the form which will be kept with the MCA for future correspondence. Challan will also be generated showing the details of the fees paid as an acknowledgment that the eForm has been filed. When the relevant authority completely processes the electronic form, it will send the user a confirmation of receipt of the electronic form and related documents (if any) in the form of an email to the company’s email identification.

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References:

[1] The Companies Act, 2013, § 88

[2] The Companies Act, 2013

[3] The Companies Act, 2013