Significant beneficial owners to face music for wrong disclosures

The amendments to the rules also come at a time when the government is clamping down on corporate entities suspected to be used as conduits for illicit fund flows.

Published: 11th February 2019 05:32 AM  |   Last Updated: 11th February 2019 08:00 AM   |  A+A-

By Express News Service

NEW DELHI:If a Significant Beneficial Owner (SBO) of a corporate gives inadequate or wrong disclosure about his or her ownership, s/he could face strict action under the Company Law, as it makes such offence a fraud.

With the Ministry of Corporate Affairs amending the rules for SBOs under the Companies Act, 2013, corporates are now mandated to take necessary steps to identify such owners and obtain a declaration from them.

According to consultancy Deloitte, the spirit of the amended rules is to bring in more clarity, and is in alignment with the government’s drive to inculcate transparency and accountability in the corporate set up.
Hence, SBOs who fail to make a declaration regarding their ownership could face fine, imprisonment or both under the Companies Act.

If such beneficiaries have willfully provided incorrect information, it would be considered a fraud under the Act.

The onus is not just on the beneficiaries. Companies that fail to maintain registers of significant beneficial owners would also face action.

Apart from providing more clearer definitions for determining whether an individual or an entity has Significant Beneficial Ownership, corporates would be required to provide the details in a more elaborate manner to the ministry.

In cases where a Significant Beneficial Owner does not provide a response or if the response is inadequate, then the company concerned can approach the National Company Law Tribunal for suitable directions, including freezing of their rights related to their shares.

“The disclosures relating to Significant Beneficial Owners are expected to lead to transparency of shareholding structures and help the government identify benami transactions and prevent money laundering activities,” Deloitte said in a note.

The amendments to the rules also come at a time when the government is clamping down on corporate entities suspected to be used as conduits for illicit fund flows. The ministry, which is implementing the companies law, has already deregistered lakhs of companies that have not been carrying out business activities for a long time.

Who is a Significant Beneficial Owner?

A Significant Beneficial Owner is an individual, who does not appear on the records of the company as a holder of any genuine interest, but in reality exercises significant influence over the company,
acting alone or along with other persons.

The Companies Act, 2013, provides that holding of 10 per cent or more of an ultimate Interest in a company shall be termed as holding of Significant Interest in that company

Corporates are now mandated to take steps to identify SBOs and obtain a declaration from them

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