SIGNIFICANT BENEFICIAL OWNER UNDER SECTION 90 OF COMPANIES ACT 2013

1. Is there any connection between section 89(Declaration in Respect of Beneficial Interest in any Share) and 90 of the Companies Act, 2013?

First of all, we have to understand the purpose of sections 89 and 90.

Section 89: Section 89 comes into picture when Legal owner and Beneficial owner are different. 

For example, XYZ Ltd wants to incorporate ABC Ltd, a wholly-owned subsidiary (WOS) company. In this case, to incorporate ABC Ltd. we need 7 members (to incorporate a public company in India, at least 7 members are required). Since ABC Ltd going to be WOS, then total shareholdings must be with XYZ Ltd. To solve this situation, XYZ Ltd. may nominate 6 individuals who shall be just legal owners (whose name just recorded in the register of members) to comply with the requirement to have 7 members (including XYZ Ltd) whereas beneficial owners shall be XYZ Ltd.

Compliance:

In the above case to fulfill the compliance part, 6 individuals so nominated above will file a declaration in MGT-4  and XYZ Ltd will file a declaration in MGT-5 to ABC Ltd, and ABC Ltd in turn, file MGT-6 to the Registrar of Companies (ROC).

In this process, it is not the responsibility of ABC Ltd company to find out who is the legal owner and who is a beneficial owner. ABC Ltd will file form MGT-6 only when it receives MGT-4 and MGT-5. But, section 90 (Significant Beneficial Owner in a company) compliance requirement is altogether different.

Section 90 (Significant Beneficial Owner (SBO) in a company): U/s 90, it is a responsibility of the company to find out who is/are SBOs. Who is SBO, is very well defined in the amended rules (not discuss here). If you notice then you will find that under section 89, responsibility on the Legal owner and beneficial owner to intimate the company, but the same is opposite under section 90.

One more important point worth mentioning here that Section 90 and rules made thereunder while defining the SBO focus on indirectly, or together with any direct holdings. Legislature deliberately places the word indirect before direct. In this way, their intention is not to include the person whose direct holding is more than the threshold. 

Here, I clear that direct holding means whose name is recorded in the register of members and who declares his beneficial interest in MGT-5.

The reason to include section 89 into direct holdings is due to fact that rule made under section 90 specifically mentions cases where a person may hold shares indirectly and those cases nowhere mention the case of holding share through nominee and file the declaration. So, we can safely say that section 89 holdings shall be considered as direct holding.

But, it is noted that if a person's indirect holdings are less than the threshold but, if combined with direct holdings and it crosses the threshold then Section 90 kick in.