Sbo declaration

The Ministry of Corporate Affairs ('MCA') in the year 2018, introduced the provision for declaration by individuals identified as Significant Beneficial Owners ('SBOs') for companies under section 90 of the Companies Act, 2013 ('Act').

Section 90 of Companies Act, 2013 mandates significant beneficial owners to make a declaration to the reporting company specifying the nature of his interest and other particulars as provided in Companies (Significant Beneficial Owners) Rules, 2018 (‘SBO Rules’) within 90 days of February 8, 2019 being date of commencement of the Companies (Significant Beneficial Owners) Amendment Rules, 2019. An important question in this regard is – whose onus is it? Is it the onus of the respective SBOs to come forward to reveal themselves, or is it the obligation of the reporting company to trace its SBOs and bring them, so to say, from behind the shadows? Substantial confusion has been created due to mismatched language of sec. 90 (5), and Rule 2A of the SBO Rules, whereby, lot of corporate professionals have formed a view that there is a primary obligation on the part of the companies to bring out their SBOs. This article intends to clarify that the provisions of sec. 90 (5) and (6), and those of Rule 2A, are mutually independent, and talk about two different things. Rule 2A is an example, found very commonly these days, where the rule-maker has made a rule for which there is no explicit provision in the law. Therefore, rule 2A should be read as an independent obligation, whereas the genesis of section 90 (5) is the existence of knowledge or reasonable cause to believe, with the company, that there is an SBO who has not come forward to reveal his identity. In short, this article clarifies the statutory provision about Form Ben 4. Scope of Section 90 (5) Section 90 (5) casts the responsibility on a reporting company to send notice to any person (whether or not a member of the Company) whom the reporting 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, The format of notice (Form BEN-4) is provided in Rule 6 of SBO Rules. On receipt of the said notice, the recipient is under an obligation to give the information within a period of 30 days of the date of notice, as per the requirement given in Section 90 (6). In case of non-receipt of information or in case of information not being satisfactory, the reporting company is under obligation to apply to NCLT within 15 days of expiry of the period specified in the notice, for an order directing that the shares in question be subject to restrictions with regard to transfer of interest, suspension of all rights attached to the shares.