Companies Act Section 90

Companies Act, Section 90: Register of Significant Beneficial Owners in a Company

Section 90 of the Companies Act establishes a legal framework to identify, record, and disclose significant beneficial ownership in companies. The objective of this section is to enhance transparency in corporate shareholding, ensuring that individuals with significant control or influence over a company are properly identified and disclosed. Below is a comprehensive breakdown of the section and its various provisions.

Subsection (1): Declaration by Significant Beneficial Owners (SBOs)

Definition of Significant Beneficial Owner (SBO)

An individual qualifies as a significant beneficial owner if they, either alone, in conjunction with others, or through one or more persons or trusts (including foreign trusts or entities), meet the following criteria:

Hold a beneficial interest of 25% or more (or a lower percentage as prescribed) in the company's shares.

Exercise, or have the right to exercise, significant influence or control over the company, as defined under Section 2(27) of the Act.

Obligation to Declare

Individuals meeting the criteria of an SBO must submit a declaration to the company, detailing:

The nature of their beneficial interest.

Relevant particulars regarding their ownership.

Timeline and Format

The declaration must be made within the prescribed period and in the format specified by the applicable rules.

Exemptions

The Central Government has the authority to prescribe certain classes of persons who are exempt from the requirement to make declarations under this subsection.

Subsection (2): Maintenance of a Register by the Company

Obligation on the Company

Each company is required to maintain a register of significant beneficial owners (SBO register).

Details to be Included in the Register

The register must contain:

The name of the individual.

Date of birth.

Address.

Details of their ownership in the company.

Any other particulars as prescribed by law.

Updates and Changes

Any changes in the information related to an SBO must also be recorded in the register as soon as they occur.

Subsection (3): Inspection of the Register

Accessibility

The SBO register must be made available for inspection by any member of the company.

Fees for Inspection

Members who wish to inspect the register must pay the prescribed fees.

Subsection (4): Filing of Returns with the Registrar

Filing Requirement

Companies must file a return with the Registrar of Companies (ROC) regarding:

Significant beneficial owners.

Any subsequent changes in beneficial ownership.

Details of the Return

The return must include:

Names and addresses of SBOs.

Other prescribed particulars.

Timeline and Format

Returns must be filed within the prescribed time, using the format specified by relevant regulations.

Subsection (4A): Responsibility to Identify SBOs

Proactive Measures by Companies

Companies must take all necessary steps to identify individuals who qualify as significant beneficial owners (SBOs).

Compliance Requirement

Companies must ensure that such individuals comply with their declaration obligations under this section.

Subsection (5): Notice to Persons Believed to Be SBOs

Authority to Issue Notices

A company may issue a notice to any person (whether or not a shareholder) if it:

Knows or reasonably believes the person is an SBO.

Believes the person has knowledge about the identity of an SBO.

Believes the person was an SBO in the past three years but is not currently registered as such.

Purpose of the Notice

The notice aims to ascertain or confirm the identity of SBOs or obtain relevant information about them.

Subsection (6): Obligation to Respond to Notices

Response Period

Individuals who receive a notice under Subsection (5) must respond within 30 days from the date of issuance.

Subsection (7): Action for Non-Compliance with Notice

Company Action

If a person:

Fails to provide information within the specified time, or

Provides incomplete or misleading information,

the company must apply to the National Company Law Tribunal (NCLT) within 15 days for appropriate action.

Tribunal’s Authority

The Tribunal may issue an order imposing restrictions on the shares in question, including:

Prohibiting the transfer of shares.

Suspending voting rights.

Restricting dividend or other entitlements related to the shares.

Subsection (8): Tribunal’s Order

Timeline for Decision

The Tribunal must pass an order within 60 days of receiving the company’s application.

Hearing Opportunity

The Tribunal must provide all concerned parties with an opportunity to present their case before making a final decision.

Subsection (9): Relaxation or Transfer of Restricted Shares

Application for Relaxation

Affected individuals may apply to the Tribunal for relaxation or removal of restrictions within one year from the date of the order under Subsection (8).

Transfer to Authority

If no application is filed within the specified period, the restricted shares will be transferred to the authority constituted under Section 125(5) of the Companies Act.

Subsection (10): Penalties for Non-Declaration by SBOs

Individual Liability

Failure to make a declaration under Subsection (1) results in:

A penalty of ?50,000.

An additional penalty of ?1,000 per day for continuing failure, up to a maximum of ?2,00,000.

Subsection (11): Penalties for Non-Compliance by the Company

Company Liability

If a company:

Fails to maintain the SBO register,

Fails to file the required returns, or

Denies inspection of the register,

it will be liable to:

A penalty of ?1,00,000.

An additional ?500 per day for continuing failure, up to a maximum of ?5,00,000.

Officer Liability

Every officer in default will face:

A penalty of ?25,000.

An additional ?200 per day for continuing failure, up to a maximum of ?1,00,000.

Subsection (12): Penalty for False Information

If any person willfully provides false or misleading information or suppresses material facts in their declaration under this section, they shall be subject to prosecution under Section 447 of the Companies Act, which deals with fraudulent activities.

Key Objectives of Section 90

Transparency in Ownership

Ensures that companies disclose individuals who exert significant control or influence over corporate affairs.

Prevention of Fraud

Discourages misuse of corporate structures for illegal activities such as tax evasion or money laundering.

Alignment with Global Standards

Brings India’s corporate governance framework in line with international standards regarding beneficial ownership transparency.