Disclosure of Beneficial Interest Corporate Shareholding

Ensuring Transparency in Corporate Shareholding: Section 89 of the Companies Act, 2013, outlines the requirements for the disclosure of beneficial interest in shares by the registered and beneficial owners. This section aims to ensure transparency in the ownership structure of a company and prevent the misuse of corporate entities for illicit activities. Here, we will explore the definitions of registered and beneficial owners, the filing process of Form MGT-6, and differentiate these from Significant Beneficial Owners (SBOs).

Definitions

Registered Owner: The registered owner is the person whose name is entered in the register of members of a company. This individual holds the shares legally and has the right to transfer them, receive dividends, and vote in the company’s meetings.

Beneficial Owner: The beneficial owner is the person who enjoys the benefits of ownership even though the title is in another name. This person may receive dividends, enjoy rights, and bear the risks associated with the shares but does not appear as the owner in the company’s records.

Disclosure Requirements under Section 89

Ensuring Transparency in Corporate Shareholding

1. Disclosure by Registered Owner: A registered owner who does not hold the beneficial interest in shares must file a declaration to the company in Form MGT-4 within 30 days from the date on which his name is entered in the register of members.
2. Disclosure by Beneficial Owner: Similarly, a person who holds beneficial interest in shares but is not the registered owner must file a declaration to the company in Form MGT-5 within 30 days of acquiring such beneficial interest.
3. Company’s Duty: Upon receiving declarations in Form MGT-4 and MGT-5, the company is required to file a return with the Registrar of Companies (RoC) in Form MGT-6 within 30 days from the date of receipt of the declarations. This return should include the details of the registered owner and the beneficial owner.

Form MGT-6: Filing Process

Form MGT-6 is critical for maintaining transparency about the true ownership of shares in a company. The form must be filed with the following steps:

1. Collection of Declarations: The company collects Form MGT-4 and MGT-5 from the registered and beneficial owners respectively.
2. Preparation of MGT-6: The company secretary or an authorized person prepares Form MGT-6, consolidating information from the received declarations.
3. Filing with RoC: The completed Form MGT-6 is filed with the Registrar of Companies through the MCA21 portal. This ensures that the RoC has up-to-date records of the beneficial ownership of shares.

Form MGT-6 is a crucial document mandated by the Companies Act, 2013, to maintain transparency in the shareholding structure of a company. This form is specifically used for reporting the declaration of beneficial interest in shares, as prescribed under Section 89. Understanding the purpose, requirements, and filing process of Form MGT-6 is essential for corporate compliance and governance.

Purpose of Form MGT-6

Form MGT-6 serves to inform the Registrar of Companies (RoC) about the beneficial interest in shares held by individuals who are not the registered owners. This disclosure ensures that the true ownership of shares is transparent and that any hidden or indirect ownership is reported to regulatory authorities.

Filing Requirements

Form MGT-6 must be filed by a company upon receiving declarations from both the registered owner and the beneficial owner of shares. The process involves several steps:

1. Declaration by Registered Owner (Form MGT-4): The registered owner, whose name appears in the company’s register of members but who does not hold the beneficial interest, must file a declaration in Form MGT-4 within 30 days of entering their name in the register.
2. Declaration by Beneficial Owner (Form MGT-5): The beneficial owner, who enjoys the benefits of ownership but is not the registered owner, must file a declaration in Form MGT-5 within 30 days of acquiring the beneficial interest.
3. Company’s Responsibility: Upon receiving these declarations, the company is required to consolidate the information and file Form MGT-6 with the RoC within 30 days from the date of receipt of the declarations. This form includes detailed information about the registered owner, the beneficial owner, and the nature of their relationship.

Distinction Between Beneficial Owner and SBO

While both beneficial owners and Significant Beneficial Owners (SBOs) are related to the concept of beneficial interest, there are crucial differences:

• Beneficial Owner: As defined under Section 89, a beneficial owner is any individual who enjoys the benefits of shares while the registered owner holds the title. This applies regardless of the percentage of holding.
• Significant Beneficial Owner (SBO): Under the Companies (Significant Beneficial Owners) Rules, 2018, an SBO is an individual who holds not less than 10% of the shares or voting rights in a company, either directly or indirectly. The identification and disclosure of SBOs are mandated under Section 90 of the Companies Act, 2013, which imposes additional requirements and thresholds.

Importance of Compliance Ensuring Transparency in Corporate Shareholding

Compliance with Section 89 is vital for multiple reasons:

1. Transparency: It helps in revealing the true owners of shares, which is essential for maintaining transparency in corporate governance.
2. Regulatory Oversight: Ensures that regulators have accurate data about the ownership structure, aiding in the prevention of fraud and money laundering activities.
3. Stakeholder Trust: Enhances the trust of stakeholders, including investors and creditors, by providing clear information about who actually controls the company.

Penalties for Non-Compliance

Failure to comply with the requirements of Section 89 can result in penalties for both the company and the individuals involved. The company and every officer in default may be liable to a fine ranging from Rs. 50,000 to Rs. 5,00,000, along with additional fines for continuing contraventions.

Penalties for Non-Compliance under Section 89: Detailed Overview

Section 89 of the Companies Act, 2013, mandates that both registered and beneficial owners disclose their interests in shares to the company, which must then file this information with the Registrar of Companies (RoC) in Form MGT-6. Non-compliance with these requirements attracts significant penalties, ensuring adherence to transparency and corporate governance norms.

Detailed Penalties for Non-Compliance

1. For the Company: If a company fails to comply with the provisions of Section 89, it is liable to a penalty. Specifically, the company can be fined a minimum of Rs. 50,000, which may extend up to Rs. 500,000.
2. For Officers in Default: Every officer of the company who is in default (e.g., directors, company secretary) may also face penalties. Each officer can be fined between Rs. 50,000 and Rs. 500,000. In cases of continuing default, there is an additional fine of Rs. 1,000 for each day of non-compliance after the first during which the failure continues.

Practical Example

Consider XYZ Ltd., a company where Mr. A is the registered owner of 15% of the shares, but Ms. B holds the beneficial interest. Mr. A fails to file the declaration in Form MGT-4 within 30 days. Subsequently, Ms. B also fails to declare her beneficial interest in Form MGT-5. Consequently, XYZ Ltd. does not file Form MGT-6 with the RoC.

This situation leads to non-compliance with Section 89, triggering penalties as follows:

• Penalty on XYZ Ltd.: The company can be fined an amount ranging from Rs. 50,000 to Rs. 500,000. The actual penalty amount depends on the duration of non-compliance and the discretion of the adjudicating authority.
• Penalty on Officers in Default: Suppose Mr. X and Ms. Y are the directors responsible for ensuring compliance with Section 89. Each could face penalties ranging from Rs. 50,000 to Rs. 500,000. Additionally, for each day the non-compliance continues, they could incur an extra fine of Rs. 1,000.

Related Sections

• Section 403: This section deals with fees for filing, etc. If the required forms (MGT-4, MGT-5, and MGT-6) are not filed within the specified period, Section 403 allows for additional fees. However, if forms are not filed at all, penalties under Section 89 apply.
• Section 450: This section provides general penalties for contraventions of the Companies Act for which no specific penalty is provided. In the context of Section 89, if specific contraventions are not covered, penalties under Section 450 may also be invoked.

Importance of Compliance Section 89

1. Regulatory Transparency: Ensuring timely and accurate disclosures help maintain transparency in corporate operations, aiding regulatory oversight.
2. Preventing Fraud: Proper disclosure prevents the misuse of corporate structures for illegal activities, such as money laundering or tax evasion.
3. Stakeholder Trust: Compliance fosters trust among investors, creditors, and other stakeholders, who rely on transparent corporate governance for their decision-making.

Conclusion

Section 89 of the Companies Act, 2013, is a critical provision for ensuring transparency and accountability in the ownership of company shares. By requiring the disclosure of beneficial interests, it helps maintain an accurate record of share ownership, thereby supporting good corporate governance practices. Companies must diligently comply with these requirements to avoid penalties and foster trust among stakeholders.

By understanding and adhering to the mandates of Section 89 and ensuring timely filing of Form MGT-6, companies can demonstrate their commitment to transparency and regulatory compliance, thereby reinforcing their integrity and reliability in the eyes of regulators and the public.