Companies Act Series
July 26, 2024
Should the Beneficial Owner under Section 89 of Companies Act, 2013, be only a natural person?
MCA notifies Companies
(Management and Administration) Amendment Rules,
2024 to roll out new Web-Form MGT-6. E-form MGT 6 is the
return to report the declaration received by
the registered and beneficial owner in shares
of the company. Web Form MGT 6 deviates
significantly from the previous version of the
e-form MGT 6 in terms reporting of beneficial
owner under Section 89 of Companies Act, 2013 This new Web-Form MGT
6 appears to say that the beneficial owner under
Section 89 should be a natural person only which
is a major shift from the previous reporting
Ministry of Corporate Affairs (“MCA”)
vide its notification dated July 15, 2024 brought
amendments to Companies (Management and Administration)
Rules, 2014 (“Principal Rules”)
by way of ‘Companies (Management and Administration)
Amendment Rules, 2024 (“Amended Rules”)
to substitute the
e-form
MGT 6, a return which is filed with
Registrar of Companies (“RoC”)
in respect of declaration under Section 89 of the
Companies Act, 2013 (“CA 2013”)
received by a company, with the new
web-form
MGT 6.
Section 89 of the CA 2013 deals with the declaration
of beneficial interest in shares. It requires individuals
who hold shares on behalf of another person or who
hold beneficial interest in shares of a company
to declare such interest to the company. Section
90 of the CA 2013 deals with the register of significant
beneficial owner(s) (“SBOs”)
in a company. It mandates companies to maintain
a register of SBOs and file returns of such SBOs
with the RoC. Thus, the objective of Section 90
is to identify a natural person who is a SBO
of the company and whereas Section 89 may have an
artificial person as ‘beneficial
owner’ as well.
As far as the reporting of such beneficial ownership
is concerned, SBO who is a natural person should
submit Form BEN 1 under Section 90 of CA 2013 and
company would report the same to RoC in e-form
BEN 2. Whereas, it is not the same for Section
89 of CA 2013, where even a body corporate can be
reported as the holder of beneficial interest in
shares, as detailed in Forms MGT 4 and MGT 5 under
the Principal Rules.
In this hotline, we analyze the changes introduced
in the web-form MGT 6 by the Amended Rules and how
such changes are
not
in harmony with the provisions of Section 89 of
the CA 2013, creating practical issues for companies
in filing such return with RoC.
Alternatively,
are these changes an indication of something new
that the fraternity needs to comply with?
Background:
In general, beneficial ownership refers to having
a beneficial interest in any property, goods, including
securities. This can be defined as “profit,
benefit or advantage resulting from a contract,
or the ownership of an estate as distinct from the
legal ownership or control.”
Section 89 of CA 2013 requires making of declarations
in cases where the registered owner and the beneficial
owner of shares in a company are two different persons.
A person whose name is entered in the register
of members of
a company as
the holder of shares in that company but
who does not hold the beneficial interest in such
shares, such person shall make a declaration in
Form MGT 4 within 30 days (from the date on
which his name is entered in the register of member)
to the company specifying
the name and other particulars of the person who
holds the beneficial interest in such shares.
Every person who holds or acquires a beneficial
interest in share(s) of a company shall
make a declaration to the company specifying
the nature of his interest, particulars of the person
in whose name the shares stand registered in the
books of the company and
such other particulars in Form MGT 5 within
30 days of acquisition of beneficial interest.
Where any declaration as mentioned above is made
to a company, the company shall
make a note of such declaration in the register
concerned and shall file, within 30 days from
the date of receipt of declaration by it, a return in
e-form MGT 6 with RoC.
Section 89(10) of CA 2013 defines ‘beneficial
interest’ for the purpose of Section 89 and
90 of the CA 2013 as – “beneficial
interest in a share includes, directly or indirectly,
through any contract, arrangement or otherwise,
the right or entitlement of a person alone or together
with any other person to —
(i)
exercise or cause to be exercised any or
all of the rights attached to such share; or
(ii)
receive or participate in any dividend or other
distribution in respect of such share.”
Forms MGT 4 and MGT 5 are manual forms that are
submitted by the registered owner and beneficial
owner respectively whereas MGT 6 is an electronic
return filed by the company with RoC intimating
the creation/change of beneficial/registered owner
in the shares of the Company.
Declarations under Section 89 of the CA 2013
are mostly made in case of wholly owned subsidiary
structures where all the shares except nominal
number of shares are held by parent entity and those
nominal shares are held by some other person (natural
or artificial) in the capacity of nominee to the
parent to satisfy the requirement of minimum number
of members pursuant to Section 187 of the CA 2013.
Analysis and Key Takeaways:
The new Web-Form MGT 6, introduced on July 15,
2024, replaces the erstwhile e-form MGT 6 and includes
several noteworthy changes that pose practical issues
in filing such forms, understanding Sections 89
and 90 of the CA 2023. These changes have created
doubts amongst stakeholders regarding the intent
and objectives behind such changes, which are not
in line with the legislation, and raise questions
about compliance with the new reporting requirements.
Forms MGT 4 and 5, a declaration to be made by
the registered owner and person holding beneficial
interest provides for below details –
particulars of the
registered owner of the shares; particulars of the
shares in respect of which declaration is being
made; and particulars of the
person who holds the beneficial interest in
such shares.
Interestingly, these forms seek details typical
of natural persons (like date of birth/age,
father/spouse name, passport number in case of foreign
nationals, nationality, etc.). Even the language
in Section 90 and rules made thereunder specifies
words like ‘his interest’, ‘his
name’ for individuals.
The only detail sought for body corporate (artificial
person) in these forms MGT 5 and MGT 4 is the
Corporate Identification Number of such beneficial
owner and registered owner.
In practice, both beneficial owner and registered
owner fills the details to the extent applicable
marking others (like father’s/spouse name)
as ‘not applicable’. The previous
e-form MGT 6 required limited details for the beneficial
owner—name, address, and nationality.
However, the new Web-Form MGT 6 significantly
expands the required details, clearly indicating
that the beneficial owner under Section 89 should
also be a natural person and not an
artificial person, marking a major
shift from the previous reporting practices.
Significant changes in new form
MGT 6:
Point 4
of the new Web-Form MGT 6 seeks details of the
registered owner of the shares. The form specifies
that either the ‘Father’s
Name/Husband’s Name’
or ‘Name of the authorized
person’ must be provided.
For the identity details, the form offers three
options (i) PAN; (ii) Passport; and (iii) other
registration number. It also provides for ‘date
and place of incorporation’ in addition
to the ‘date of birth and nationality
for individuals’.
Also, the form allows for the inclusion of the
name of the authorized person in addition to father/husband
name (though ‘spouse’ would
be a more inclusive term than ‘husband’).
All
these features in the new MGT 6 clearly indicates
that, the registered owner can either be a natural
person or an artificial person.
Point
5 of the new Web-Form MGT 6 seeks details
of the beneficial owner of the shares. The update
includes a new field for ‘Beneficial
Owner ID” (“BO ID”)
if available.
Additionally, the form restricts identity details
to two options (i) PAN; and (ii) Passport, excluding
other registration numbers. It requests only the ‘date
of birth’ and ‘nationality’,
omitting ‘date and place of incorporation’.
Lastly, it only requires the father’s/husband’s
without providing an option for ‘authorized
person’.
All
these features in the new MGT 6 clearly indicates
that, the beneficial owner can only be a natural
person diverging from previous practices.
So, the
new web-form MGT 6 clearly indicates that, registered
owner can be either a natural person or an artificial
person, but the beneficial owner should be a natural
person only.
Conclusion:
With the introduction of new Web-Form MGT 6,
it has introduced significant changes that raises
several important questions. Apart from the practical
issues, there are more theoretical questions, one
needs to ponder upon. While these updates aim to
streamline reporting, they also create uncertainties
and potential conflicts with existing provisions
under the CA 2013. Key issues that require attention
include:
Differentiation
of IDs: The introduction of BO ID raises
a question on whether SBO ID under Section 90
is same as BO ID under Section 89 or is it a
different ID? Definition
and Parameters: If the intent is to
identify a beneficial owner under Section 89
also a natural person (like under Section 90),
it is essential to specify the parameters/ definition
of beneficial owner for the purpose of Section
89. What specific criteria or characteristics
define a beneficial owner for the purpose of
Section 89? Purpose of
Section 89: Given that Section 90 already
focuses on identifying a natural person, it
is important to understand the distinct objectives
and outcomes that Section 89 aims to achieve.
What additional purpose does Section 89 serve
in this context? Impact on Company
Structure: If the beneficial owner
is restricted to ‘natural person’
only, in such case, can a company still operate
as a wholly owned subsidiary? This raises questions
about the feasibility and implications for corporate
structure mainly for foreign wholly owned subsidiaries
in India. Consistency
of Forms: If declaration in Form MGT
5 is to be given by natural person only, then
form MGT 5 should also be amended to suit to
the new Web-Form MGT 6. Else, there exists conflicts
between the forms, leading to practical difficulties
in compliance.
To address these concerns and facilitate smoother
business operations, it would be prudent if MCA
issues clarifications to address the practical as
well legal issues. They should aim to resolve both
practical and legal issues, ensuring a clear and
consistent approach to identifying beneficial owners
and simplifying the compliance process.
Authors:
Santosh Gangavati, Leader, Corporate team
Maulin Salvi, Leader, Corporate team
(The authors would like to acknowledge and thank Ankit Porwal for his contribution to this article.)
You can direct your queries or comments to the relevant member.
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