Disclosure of Significant Beneficial Ownership

The Ministry of Corporate Affairs (MCA) on June 13, 2018 notified Section 90 of the Companies Act, 2013 (Act); and notified Companies (Significant Beneficial Owners) Rules 2013. This rule came into effect on June 14, 2018. These provisions require certain compliances to be followed by a Significant Beneficial Owner and a company.

Who is a “Significant Beneficial Owner”?

“Significant Beneficial Owner” means an individual who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds ultimate beneficial interest of not less than 10% in shares of a company or the right to exercise, or the actual exercising of significant influence or control in a company.

This applies to the (i) individual who is acting alone or together with one or more persons (includes partnerships) (ii) includes a trust (iii) person resident in India or outside India.

 Sr. No. Where Shareholder of a company is a Who is Significant Beneficial Owner?
A. Company Significant Beneficial Owner is the natural person, who, whether acting alone or together with other natural persons, or through one or more other persons or trust holds atleast 10% of share capital of the Company or exercise significant influence or control in the company.
B. Partnership Firm Significant Beneficial Owner is the natural person, who, whether acting alone or together with other natural persons, or through one or more other persons or trust holds atleast 10% of capital or is entitled of not less than 10% of profits of the partnership firm.
C. Trust The Significant Beneficial Owner shall be- the author of the trust, and the trustee and the beneficiaries with not less than 10% interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership.

Where no natural person is identified in point no. A and B in the table above, the Significant Beneficial Owner is the relevant natural person who holds the position of senior managing official.

What is the obligation of Significant Beneficial Owner?

  • Every existing Significant Beneficial Owner is obligated to file a declaration in Form No. BEN-1 with the respective company. This declaration is to be made by September 10, 2018.
  • Every Significant Beneficial Owner shall file any change in his significant beneficial ownership within 30 days to the company.
  • Every individual, who acquires significant beneficial ownership in a Company, shall file a declaration in Form No.BEN-1 to the Company within 30 days of acquiring such significant beneficial ownership.

What are the obligations of the Company?

  • The company receiving the declaration has to maintain a register of Significant Beneficial Owners.
  • The company has to file a return in Form No. BEN-2of significant beneficial owners of the company and changes therein with the Registrar within 30 days from the date of receipt of the declaration.
  • Maintain a register of significant beneficial owner in Form No. BEN – 3.
  • Also, if the Company knows or has reason to believe that someone is s Significant Beneficial Owner (or has been a Significant Beneficial Owner in last 3 years) and is not registered with the company as a Significant Beneficial Owner then, the company is required to give notice to such person seeking information in Form No.BEN-4.

Consequences of non-disclosure by Significant Beneficial Owner

  • Shares may be made subject to the restriction on transfer.
  • All rights in shares held by such Significant Beneficial Owner shall be suspended, including, voting rights, dividend etc.
  • The MCA may impose penalty of up to INR 1,00,000/- and INR 1,000 per day the default continues.
  • Such Significant Beneficial Owner can be charged with fraud under Section 447 of Companies Act, 2013.

Consequences of non-compliance by a company?

Fine ranging from INR 10,00,000/- to INR 50,00,000/- for company and INR 1,000 per day the default continues.

Who is exempted from definition of Significant Beneficial Owner?

  • Mutual Funds;
  • Alterative Investment Funds (AIFs); and
  • Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (lnvlTs).

Directorship – Comply with MCA, KYC Guidelines

Ministry of Corporate Affairs (MCA), India would be conducting KYC (Know Your Customer) of Directors of all companies on an annual basis through a new e-form viz. DIR-3 KYC to be notified and deployed shortly with MCA.

Accordingly, every Director who has been allotted Director Identification Number (DIN) on or before March 31, 2018 and whose DIN is either (i) in ‘Approved’ status, or (ii) inactive due to disqualification of such Director would be mandatorily required to file form DIR-3 KYC on or before September 15, 2018 with MCA.

While filing the form, the Unique Personal Mobile Number and Personal Email ID of the Director would have to be mandatorily indicated and would be verified by One Time Password (OTP) to be sent to such Director’s registered mobile no.

The e-form should be filed by every Director using his own Digital Signature Certificate (DSC) with MCA and should be duly by a practicing professional (CA/CS/CMA).

Failure to comply with this provision will result in the DIN of such Director to be ‘Deactivated’ thus disqualifying such Director. Activation of DIN can then be done by paying requisite filing fees.

Revival of Company Struck Off by Registrar Of Companies, India (“ROC”)

Over 2,00,000 companies which have not filed their annual returns and balance sheet for 3 consecutive financial years, have been de-registered by the Registrar of Companies (ROC) and a series of action against such companies have been taken including de-activating the DIN of the directors of such companies. This essentially means, that directors of such companies are now disqualified and cannot be appointed as directors in any other company.

However, the Registrar of Companies (ROC) has also now given an opportunity to such companies, to get their compliance in place and apply for the revival of the company.  If you are the director or promoter of any such company, then read on to understand how you can rectify the situation:

1. Who can apply for the revival of a company?

The following persons can file the application with National Company Law Tribunal (NCLT) for revival:

  • The company that has been deregistered by the Registrar of Companies (ROC);
  • Creditors or shareholders of a company that has been deregistered by the Registrar of Companies (ROC); and
  • Workmen of a company that has been deregistered by the Registrar of Companies (ROC).

2. What is the timeline for filing an application for revival of a company that has been deregistered by the Registrar of Companies (ROC)?

A company that has been deregistered by the Registrar of Companies (ROC) can apply for revival within the below-stated timelines:

  • Where the order for deregistration has been passed by NCLT: The company has 20 years from the date of strike-off order to apply to Registrar of Companies (ROC) for revival; or
  • Where the order for deregistration has been passed by Registrar of Companies (ROC): The company has 3 years from the date of the order passed by Registrar of Companies (ROC) to apply to Registrar of Companies (ROC) for revival.

3. What is the procedure to be followed for revival?

The applicant has to file a petition for revival with NCLT through the Registrar of Companies (ROC), in the prescribed Form NCLT-9 for the restoration of the name of the company with the following supporting documents:

  • Document and/or other evidence in support of the statement made in the application or appeal or petition, as are reasonably open to the petitioner(s);
  • Where the petition is presented on behalf of members (shareholders), the letter of consent given by them, if applicable;
  • Affidavit verifying the petition;
  • Evidence regarding payment of the fee of Rs. 1,000/-;
  • Memorandum of appearance with a copy of the Board resolution or the vakalatnama, as the case may be;
  • Certified True copy of the Power Of Attorney;
  • Affidavit Not Claiming Dormant Status Of The Company;
  • Affidavit on Demonetization;
  • Audited Financial Accounts, Profit and Loss account, Auditors Report;
  • Directors Report, AGM Notice, Attendance Register and Minutes;
  • Certified True Copy of the Memorandum of Association of the Company;
  • Certified True Copy of the Articles of Association of the Company;
  • Three copies of the petition; and
  • Any other documents in support of the case.

Upon receiving the application, NCLT shall fix a date for hearing the matter and after giving reasonable opportunity to both the parties of being heard, pass an order for restoration of the name of the company and removal of disqualification of the director, if it is satisfied with the reasons given by the company. There will, of course, be a certain penalty imposed as well.

4. Is the company automatically revived if the NCLT passes an order for restoration?

No. There are certain steps to be taken to restore the company. The applicant will have to submit a certified copy of the order with the Registrar of Companies (ROC) within 30 days from the date of the order. Only after the  Registrar of Companies (ROC) publishes the order of restoration in the Official Gazette, will the company be considered to have been restored.

In addition, the company will also have to complete all the pending financial statements and annual returns with the Registrar of Companies (ROC) and comply with the requirements of the Companies Act, 2013 and rules made thereunder within such time as may be directed by the NCLT.

Being Non Compliant Just Got More Expensive!

As per the latest amendment proposed by the Ministry of Corporate Affairs,  on April 10, 2018, companies will have to pay additional fee @ Rs.100 per day for filing annual returns after the prescribed date of filing.

For more details, read on:

  1. Which forms attract these delayed filing fees, and are covered under the annual returns?

Form 23AC, Form 23ACA, Form 23AC XBRL, Form 23ACA XBRL, Form MGT-7, Form  AoC-4, Form AoC-4 XBRL and Form AoC-4 CFS under Section 92 (Annual Return) or 137 (Annual Financial Statement) of the Companies Act, 2013.

  1. What is the current additional filing fee for delay?

As per the current fee structure, the late filing fees are as per the below structure:

Sr. No. Period of delay Additional Fees
1. More than 30 days 2 times the normal filing fees
2. More than 30 days and upto 60 days 4 times of normal filing fees
3. More than 60 days and upto 90 days 6 times of normal filing fees
4. More than 90 days and upto 180 days 10 times of normal filing fees
5. More than 180 days and upto 270 days 12 times of normal filing fees
  1. What is the regular filing fee for filing these forms/annual returns?                                                                                               

 The filing fees depend on the paid-up share capital of the company. Set out below are the slabs for the filing fees depending on the paid up share capital:

NOMINAL SHARE CAPITAL FEES APPLICABLE
Upto Rs.1 Lakh Rs.200
Rs. 1 Lakh to Rs. 5 Lakhs Rs.300
Rs. 5 Lakhs to Rs. 25 Lakhs Rs.400
Rs. 25 Lakhs to Rs. 1 Crore Rs.500
Rs. 1 Crore and more Rs.600

Below example will help you understand the fee structure in a better manner.

If there is a delay of 10 days in filing the forms, as per the current structure the fees payable will be 2 times of the normal fees, but once the revised fees are implemented the additional fees payable will be Rs. 1000/- along with the normal fee which is way higher than the current structures. Therefore, as the number of days increases the penalty too will increase proportionately. The cost of which will be much higher.

It is therefore important to complete your annual filings on time.Non filing of annual returns also has other repurcussions, such as disqualification of directors.

So what are you waiting for…#StartRight_Right Now!

Condonation of Delay Scheme, 2018

If you are a director who has been disqualified to act as “director” by the Ministry of Corporate Affairs (MCA) because of default in annual filings by one of the companies on whose board you have been serving, or if you are a company that has not done annual filings for more than a year, the New Year brings some good news and a ray of hope for you to redeem yourself!

Wondering what we are talking about? The Ministry of Corporate Affairs (MCA) has disqualified over  3,09,619 directors and struck off approximately 2,24,733 companies for (a) non-filing of financial statements and annual returns for a period of 3 consecutive years, or (b) remaining inactive for a period of 2 consecutive years, without obtaining “dormant” status.

Such was the stringent action taken by Ministry of Corporate Affairs (MCA), that no opportunity was granted to either the director or the defaulting company to make a representation or rectify the non compliance.

However, effective January 1, 2018, the Ministry of Corporate Affairs (MCA) has introduced the Condonation of Delay Scheme, 2018, granting an opportunity to companies that have not filed their financial statements and annual returns in the past to do so by April 30, 2018.

We have summarized the key issues in this regard:

  1. Which filings does the Condonation of Delay Scheme, 2018 introduced by the Ministry of Corporate Affairs (MCA) apply to?

The Condonation of Delay Scheme, 2018 applies to all the companies that have not filed the following documents, for 1 or more financial year:

  • Annual Returns
  • Financial Statement
  • Profit and Loss Account
  • Compliance Certificate
  • Intimation of appointment of auditors
  1. Which companies are eligible to apply for condonation under Condonation of Delay Scheme, 2018?

The Companies that have not filed their Financial Statement and Annual Returns (including the documents listed in 1 above), for 1 or more financial year/s.

  1. What is the recourse available to a director disqualified because the company in which he is a director has not filed Annual Returns?

The Condonation of Delay Scheme, 2018 provides for temporary reactivation of the Director Identification Number (DIN) of the directors automatically from January 12, 2018 till April 30, 2018. This is to allow the defaulting companies to update their filings. In the event, the defaulting companies do not update their pending annual filings on or before April 30, 2018, then the DIN of director of such defaulting companies shall be permanently deactivated.

  1. What is the procedure to be followed for applying for condonation under the Condonation of Delay Scheme, 2018?
  • Check if the DIN of at least one of the directors of the defaulting company is active.
  • File all pending annual returns of such defaulting company, by paying the prescribed statutory filing fees along with applicable additional fees, for delayed filings.
  • Application for condonation of delay in form e-CODS2018 to be filed by the defaulting company along with a fee of INR 30,000/-, before April 30, 2018.
  1. Is there any additional fees payable under the Condonation of Delay Scheme, 2018?

As indicated in 4 above, a fee of INR 30,000/- will have to be paid for filing form under Condonation of Delay Scheme, 2018 to the Registrar of Companies.

  1. When can the application for condonation under Condonation of Delay Scheme, 2018 be filed?

The Ministry of Corporate Affairs (MCA) is yet to notify the form e-CODS2018, which will be available only after February 20, 2018. Therefore, the application for compounding under Condonation of Delay Scheme, 2018 can be made only after February 20, 2018. However, in the meantime, the defaulting company can complete the process of updating the backlog of annual filings.

  1. What is the recourse available to companies whose names have been struck off?

In the event of defaulting companies whose names have been removed from the register of companies, for failure to file returns for a consecutive period of 3 years, an application will have to be made by them to the NCLT, for revival of the company.