THE COMPANIES AMENDMENT (ORDINANCE), …...THE COMPANIES AMENDMENT (ORDINANCE), 2019 & THE RECENT...

THE COMPANIES AMENDMENT (ORDINANCE), 2019 & THE RECENT AMENDMENTS IN THE COMPANIES ACT

- By Makarand Joshi

Amendments – Companies Act, 2013

Series of amendments to the Company Law From 1st April, 2018 to 22nd February, 2019 – 84

amendments

Coverage

Companies Amendment (Ordinance), 2019 Companies (Incorporation) Amendment Rules,

2019 Specified Companies (Furnishing of information

about payment to micro and small enterprises suppliers) Order, 2019 (MSME Order)

Amendment in Deposit rules Amendment in SBO rules

The Companies Amendment (Ordinance), 2019

& Proposed Amendments

History of Ordinance

Committee Constitution – 13 July 2018 Report Submission – 14 August 2018 Union Cabinet Approval – 1 November

2018 President’s Assent – 2 November 2018 Lok Sabha Approved – 4 January, 2019 President Assent (Re-Promulgated) – 12

January, 2019 President Assent (Re-Promulgated) –21

February, 2019

Effective date of Ordinance

Ordinance to come in force at onceat once- immediately; without delay

Proposed Amendments

Notice Inviting Comments on Proposed Amendment – 5 November 2018

Enhanced Power of Central Government

Approval of Central Government

Reduced the burden of the NCLT Central Government (RD) has the power to

approve the alteration in the financial year of a

company u/s 2(41) of the Act Conversion of public companies into private

companies u/s 14 of the Act

Section 2(41)

Section 14

Conversion of Public into private Co.

Application in RD-1 within 60 days from the date of passing ofSpecial resolution

Attachments Draft copy of MOA/AOA – Proposed alterations Minutes of GM – together with details of votes cast in favour or

against with names of dissenters Power of attorney Declaration by a KMP/ Director (in case no KMP) – No. of members restricted as per Sec. 2(68) Deposit not accepted in violation of act No non compliance of Sec. 73 to 76A, 177, 178, 185, 186

and 188 All resolutions u/s 179(3) is filed with ROC Company was never listed in any of RSEs, if listed – procedure

of delisting is completedMicrosoft Word

Document

Conversion of Public into private Co.

Advertise in Form INC-25-A - 21 days before the date of filing ofapplication

Notice to Creditors and debenture holders Filing of notice of petition with RD ,Registrar or any regulatory

authority Objections, if any Hearing with RD & passing of Final Order Obtaining final Approval order from RD INC-28 to be filed within 15 days from the date of receiving the

order from date of receipt of order Intimate all the concerned authorities about the status change. changes in Secretarial records

Commencement of Business

S.10A Commencement of Business

Company having share capital incorporated after2 November, 2018 can commence business or exerciseborrowing power only after –

Filing declaration (e-form INC-20A alongwith proof –Subscriber paid value of shares + Certificate of registration by Sectoral regulator, if any) by a director with ROC within 180 days from the date of incorporation Every subscriber to MOA has paid the value of shares as

agreed Company has verified its registered office in Form INC-22

Section 10A Rule

What is Commencement of Business?

Commencement of Business means Activity carried out by the Company pursuant to the

objects of the MoA Activity carried out to set up the business will not be

treated as commencement of business The concept of commencement will change according to

the nature and facts of the particular industry. It may vary depending upon the business model and business cycle of the industry..

M/s Surya Infra IT Parks Pvt. Ltd vs. Commissioner of Income tax Income Tax Appellate Tribunal Hyderabad

Western India Vegetable Products Ltd., 26 ITR 151 (Bom.)

Every subscriber to MOA has paid the value of shares as agreed

Whether the subscription amount can be paid in kind?

What is the meaning of Value?

Value The monetary worth or price of something; the

amount of goods, service, or money that something commands in an exchange

Whether the subscription amount can be paid by other person on behalf of

subscriber?

S.10A Commencement of Business-Non- Applicability

Not applicable to companies not having share capital

Non filing of declaration – grounds of strike off

S.10A Commencement of Business

Penal Provisions – Default in Sec. 10A Company – Penalty of Rs. 50, 000 Officer in Default – Penalty of Rs. 1,000 each day till

default continues– upto Rs. 1,00,000

Microsoft Word Document

Registered Office

Physical Verification of Regd. Office by ROC

Powers given to ROC - ROC - reasonable cause tobelieve that no business or operations is being carriedout by the company Physical verification of Regd.Office u/s 12(9) to check if the company maintainsoffice in compliance with section 12(1)

#MCA to prescribe rules w.r.t. manner of conductingphysical verification

Section 12

Strike Off

Existing Grounds for Strike off - 1

Company failed to commence its business within one year of its incorporation

Section 248


The Company which has not obtained the status of dormant company and Company is not carrying on any business or operation

for a period of two immediately preceding financialyears OR

Company is not filing financial statements and annualreturns during the last two financial years; OR

Company is not having significant accountingtransaction during the last two financial years

455

Significant accounting transaction

Significant accounting transaction means any transaction other than—(a) payment of fees by a company to the Registrar;(b) payments made by it to fulfil the requirements of this Act or any other law;(c) allotment of shares to fulfil the requirements of this Act; and(d) payments for maintenance of its office and records

- Explanation (ii) of section 455 (1)455


The Company which has obtained the status of dormant company and not complied with the provisions of sec- 455 (Minimum directors/Annual Return of Dormant Companies) (Rule 6 and Rule 7 of Companies (Miscellaneous) Rules, 20140 OR

If the Company remains as a dormant company for a period of consecutive five years. (Rule 8(1) of Companies (Miscellaneous) Rules, 2014)

Rule

New Grounds for Strike off – 1

Subscribers have not paid the subscription money atthe time of incorporation and

a declaration to that is not filed with the registrarwithin 180 days from the date of incorporation

Section 248

New Grounds for Strike off – 2

Company is not carrying on any business or operationon the physical verification of registered office by theROC u/s 12(9)

Section 248

Whether ROC can strike off the Company if Subscribers have paid subscription

money and Company has filed declaration u/s Sec. 10A but not carrying on business?

248. (1) Where the Registrar has reasonable cause to believe that—(a) a company has failed to commence its business within one year of its incorporation

Section 248

Property might vest with Central Government

Property to Vest with Central Government - Proposed Amendment

After struck off all the property and rightsheld by the Company orheld in trust for the Company before the date of

strike offshall vest absolutely in the Central Government freefrom all encumbrances

Sec 250

Board of Administrator- Proposed Amendment

Properties vested to CG - administered through aBoard of Administrators#

#Ministry may prescribe rules for the same


The Board of Administrators – on disposal of property – sale proceeds to be

deposited in the Consolidated Fund of Indiaimmediately

intimate the details of the same to the CG.


If in case of order of Restoration by Tribunal all property or rights vested in the Central

Government shall vest in the company as ifthe company had not been removed from theregister.


If any property is disposed of by the Board ofAdministrators Property shall not vest with the company after its

restoration Only proceeds so deposited in the Consolidated Fund

of India, net of costs, if any, shall be refunded to thecompany, if so ordered by the Tribunal.

Charges

Charges created/ modified Before 2 November, 2018

Sr. No.

Particulars Fees

1 Within 30 days of Charges created/ modified Normal fees

2 After 30 days but within 300 days of Charges created/ modified

Normal Fees + additional Fees

3 Charges created/ modified but not registered within 300 days as given in point No.2 – to be registered within 6 months from 2 November, 2018

Normal Fees + Additional Fees


Whether the Company will get 6 months over and above 300 days?

Creation/Modification of Charge after 2 November, 2018 (Ordinance)

Sr. No. Particulars Fees1 Within 30 days of Creation/Modification of

ChargeNormal fees

2 After 30 days but within 60 days of Creation/ Modification of Charge


3 After 60 days but within 120 days of date of Creation/ Modification of Charge

Normal Fees + Additional fees + Ad-valorem Fees

4 Charge cannot be registered after 120 days*

* Omission/Mis-statement in the Charge created or modified can be registered after 120 days subject to Condonation of Delay Microsoft Word

Document

Satisfaction of Charge

Sr. No. Particulars Fees1 Within 30 days of Satisfaction of Charge Normal fees

2 After 30 days but within 300 days of Satisfaction of Charge


3 After 300 days subject to Condonation Normal Fees + additional Fees + Condonationfees

* Omission/Mis-statement in the Charge satisfied can be registered after 300 days subject to Condonation of Delay Microsoft Word

Document

Whether unregistered charges are treated as secured?

77 (3) Notwithstanding anything contained in any other law for the time being in force, no charge created by a company shall be taken into account by the liquidator appointed under this Act or the Insolvency and Bankruptcy Code, 2016, as the case may be, or any other creditor unless it is duly registered under sub-section (1) and a certificate of registration of such charge is given by the Registrar under sub-section (2)


Charges – Fraud

In case ofWilful furnish of false or incorrect

information knowingly suppressing any material

information liable to fraud and attract action under Section

447


Have you registered Vehicle Loan?

Do you have availed any bank facility/ bank guarantee against Fixed deposit?

Disqualifications for Appointment of Director

Disqualifications for Appointment of Director

Holding of directorships beyond permissible limits (20) would lead disqualification of such directors. Consequently, vacation of office from all the Companies


Independent Director

Independent Director (ID)

Section 197 (7) omitted Sec -149 (9) Notwithstanding anything contained in

any other provision of this Act, but subject to theprovisions of sections 197 and 198, an independentdirector shall not be entitled to any stock optionand may receive remuneration by way of feeprovided under sub-section (5) of section 197,reimbursement of expenses for participation in theBoard and other meetings and profit relatedcommission as may be approved by the members.



Independent Director (ID)Proposed

Pecuniary relationship - ID - restricted to 25 % oftotal income of ID

Out of which professional or any other servicesrendered - not - account for more than 10% of thetotal income

Sitting fees and expenses incurred forparticipation in the meetings of Boardand Committees - Not to be considered whilecalculation 25%

Independent Director (ID)Proposed

ID - file return with ROC containing particulars ofDeclaration of Independence u/s 149

Filing of DIR-11 with ROC u/s 168 - Mandatory

The effective date of resignation of ID - 30th dayfrom the date of receipt of such notice by thecompany or any other date as specified in the noticewhichever is later


Penalties

Penalties

Compounding of offences Permission of special court is not required Scope of Regional Director – widened Regional Director to compound offences – Maximum

penalty 25 lakh (Earlier 5 Lakhs)


Penalties

16 corporate offences decriminalizedOffences - technical or procedural in nature -

shifted to in-house adjudication process. Imprisonment or Fine is replaced with Penalty

List of Sections (16 corporate offences)

S. No Section Ingredients of substantive provision

1 53 (3) Prohibition on Issue of Shares at Discount

2 64 (2) Notice to be Given to Registrar for Alteration of Share Capital

3 92(5) Filing of Annual return within the prescribed period

4 102 (5)

Provision of attaching a statement concerning special businessin the notice calling general meeting and the information statedtherein (Explanatory Statement)

5 105 (3)

Default in giving declaration regarding provision ofappointment of proxy in the notice calling general meeting(Proxy)



6 117 (2) Default in filing certain resolutions and agreements with theRegistrar (MGT-14)

7 121 (3) Preparation of a report on each annual general meeting bya listed public company and filing of the same with theRegistrar

8 137 (3) Copy of financial statement o be filed with the Registrar

9 140 (3) Requirement of filing a statement with the Registrar afterresigning as an auditor of a company.

10 157 (2) Company to inform DIN to Registrar

11 159 Other Contraventions related to allotment or intimation ofDIN



12 165 (6) Accepting directorships beyond specified limit

13 191 (5) Payment to director not to be made in case of loss of officeexcept under certain circumstances and subject to prescribedlimits.Any amount received by the director is to be held in trust

14 197(15) Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits

15 203 (5) Appointment of key managerial personnel in certain classes of companies

16 238(3) Requirement of registration of offer of schemes involving transfer of shares

Penalties

Penalty for repeated defaultDefault subject to penalty – Repeated within 3

years – Penalty twice


Additional Amendments Proposed

Conversion of Sec – 8 Company

Conversion of Sec. 8 Co. (Proposed)

Provision for conversion of section 8 Company intoany other kind is omitted


Investor Education and Protection Fund

Investor Education and Protection Fund (IEPF) (Proposed)

At the time of transfer of shares to IEPF, all thedividend unclaimed and unpaid on those sharesshall also be transferred to IEPF fund.


Corporate Social Responsibility (CSR)

CSR (Proposed)

A Company – not completed 3 financial yearssince inception, is now required spend as perCSR policy

Any amount remaining unspent on CSR –transfer to special account - within 30 days fromthe date of end of that F.Y

Unspent amount -to be spent in pursuance ofCSR policy - within a period of 3 F.Y from thedate of transfer to special account


What happens if the amount transferred to special account is not spent within 3

years?

Sec- 450 Punishment Where No Specific Penalty or Punishment is ProvidedIf a company …contravenes any of the provisions of this Act or the rules made thereunder…. for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.


Merger

Merger (Proposed)

Central Government may prescribe rules for merger or amalgamation between two or more small companies or between a holding company and its wholly-owned subsidiary company or such other companies as may be prescribed. 233


Merger (Proposed)

233(12) The Central Government may make rules for allowing compromise or arrangement in respectof any company specified under sub-section (1), and —

(a) its creditors or any class of them; or(b) its members or any class of them; or(c) any other company specified therein

Oppression and mismanagement

Oppression and mismanagement (Proposed)

In case of oppression and mismanagement (fraud, misfeasance, breach of trust etc.), if tribunal passes order specifying that the respondent is not a fit and proper person, he will be disqualified to act as director in that company and other companies for a period of 5 years from the date of said order


Companies (Incorporation) Amendment Rules, 2019

Companies Incorporation Amendment Rules

Effective date – 25th February, 2019

Applicable to – Every Company incorporated on or before 31st

December, 2017, except following companies Under process of striking off/struck off under process of liquidation Dissolved Amalgamated

Following Co.’s are not able to file this return Defaulted in Annual Filing (AOC-4 and/or MGT-7) exception – Co.’s under Mgt. dispute and ROC has recorded the same

in register

Incorportion Rule

Filing of Return – KYC of Company

Filing of return – Active Company Tagging Identities and Verification (e- form ACTIVE (INC-22A))

Due date – On or before 25th April, 2019 Particulars if Company and Regd. Office and KMP

Latitude and Longitude details (Geo-tagging) E-mail ID of Company and verification by OTP Details of Statutory Auditor/Cost Auditor Details of Annual filing Photograph of Regd. Office (both Exterior and Interior) along with

KMP/Director who is affixing DSC

No filing fees if filed before due date Late Filing Fees – ₹ 10,000

Practical issues in filling Form INC-22A Form gets fully pre-filled except email id and latitude and longitude of

registered office address

DIN of all directors must be active, even if 1 Director had not complied withKYC filing OR is disqualified, then form is not getting pre-filled

If any mandatory filing is not done, eg: cost auditor / statutory auditorappointment, KMP appointment, annual filing is not done, then the Formshows an error – and it cannot be filled completely.

Most common problem – In the AGM held in 2014, if a statutory auditorwas appointed for 5 years, then e-Form ADT-1was not available in 2014,hence this e-form was filed in e-Form GNL-2 by most companies – in suchcases, details of Statutory auditor is not getting pre-filled and form is notallowing manual insertion – hence, the form is not getting filed, as ofnow…..

Consequences of non- filing

Company- Marked as ACTIVE – Non compliant Director – Marked as the Director of Active – Non

Compliant Company Liable for action under Sec. 12(9) – Physical verification

of Regd. Office Filing of following e-forms will be barred

SH-7 (Change in Authorised Capital) PAS-3 (Change in paid up capiital) DIR-12 (Change in Director except cessation) INC-22 (Change in Regd. office) INC-28 (Amalgamation/Demerger)

Concept of Specified Company

“Specified Companies” means:- all companies who get supplies of goods or services

from micro and small enterprisesAND whose payments to micro and small enterprises

suppliers exceeds forty-five days from the date of acceptance or date of deemed acceptance of goods or services

Definitions under MSME Act, 2006

“Date of acceptance” means day of actual delivery of goods or rendering of services or where any objection is made in writing by the buyer regarding acceptance of goods or services within 15 days from the day of delivery of goods or rendering of services, the day on which objection is removed by supplier.

“Date of deemed acceptance” means where no objection is made in writing by the buyer regarding acceptance of goods or services within 15 days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services

(Expl: 2(b) of MSME Act.)

Initial and Half yearly Return Filing

Details of all payments outstanding to Micro and Small Enterprises along with reason for delay in payments

Initial return – e-form MSME-I - within 30 days of notification [22 January 2019] , i.e., by 21st Feb 2019 [?]

Regular half yearly return- e-Form MSME-I for the period April to September – By 31October for the period October to March – By 30th April

82

MSME

Question

In Initial Return, whether only those outstanding dues to Micro and Small suppliers need to be disclosed which are outstanding beyond 45 days, as on 22nd January 2019

OR all outstanding dues to Micro or small enterprises

suppliers existing on 22nd January 2019 are to be disclosed?

Implications of delay in payment

Section 14 to 22 of MSMED, 2006 deals with Delayed Payments to Micro and Small Enterprises

As per Section 16 of MSMED Act 2006:- The buyer is liable to pay compound interest with the monthly

rests to the supplier on the amount at the 3 X of bank rate notified by RBI in case he does not make payment to the supplier for his supplies of goods or services within 45 days of the acceptance of the goods/service rendered.


Important Points - MSME

Any business enterprise which is Manufacturing or Services are covered as ‘Enterprise’

Depending on investments in plant machinery – micro/ small / medium enterprise

Except manufacturing cos of I Schedule of IDRA, filing of memorandum is NOT Mandatory [Registration?]

ANY registered MSME or Entity which procures from MSME is called SUPPLIER

Every Supplier is eligible for protection u/s 16 MSME Notification + MCA notification uses word ‘micro or small or

medium enterprise supplier’

Deposit

Amendment in Deposits Rules

Amendment in Deposits Rules dated 22nd January 2019

Additional exclusion – Any amount received from Real Estate Investment Trusts (REIT) regd. With SEBI

Return Filing – DPT-3

DPT-3 For the period Applicability Due date

One Time Return From 1st April, 2014- 22nd

January, 2019

Every Company other than Govt.Company

21st April, 2019

Annually Information as on the 31st day of March of that year

Every Company other than Govt.Company

30th June every year

Disclosures to be given in e-Form DPT-3 about Outstanding Receipt of money or loan by a Company but not considered as Deposits, in terms of Rule 2(1)(c) of Chapter V

Trust Vs Benami Vs Beneficial Interest

BENAMI Transaction

Legitimate Beneficial Ownership

Trustee-Beneficiary

What is Beneficial Interest?

Beneficial Interest Section -89(10)

Inclusive Definition 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."

Person may be an Individual

or a Non Individual

Sec- 89 90

Concept of Significant Beneficial Owner (SBO)

Section 90: Investigation of beneficial ownership of shares in certain cases

Concept of Significant beneficial Owner Introduced Every individual, who acting alone or together, or

through one or more persons or trust, including a trust and persons resident outside India, holds [1]beneficial interests, of not less than 25% or such other percentage as may be prescribed,[10%] in shares of a company or the right to exercise, or the actual exercising of [2] significant influence or [3]control as defined in clause (27) of section 2, over the company

SBO - Definition

Individual acting [1]alone or [2]together or [3]through one ormore persons or trust possess one or more the followingrights/entitlements in reporting companyi. Holds indirectly or together with direct holding 10 % or

more sharesii. Holds indirectly or together with direct holding 10% or

more voting rights of the sharesiii. Right to receive or participate in distributable dividend

or other distributable – 10% or more in a financial yearindirectly or together with direct holding

iv. Exercises or has Right to exercise significant influence orcontrol in any manner other than direct holdings alone

SBO Rules

Some Principles corrected in new Rules

• Earlier Rules were going beyond the definition of “Beneficialinterest” defined in Sec 89(10) – Now, definition of SBO is insync with Sec 89(10)

• Earlier only Indirect Holdings were considered for determiningSBO – As per new Rules, Direct + Indirect holdings both will beconsidered

Explanations in definition of SBO

• Explanation I – If no Indirect interest = no SBO• Explanation II – meaning of directly holding in reporting

company• Explanation III – explaintion of term holding rights or

entitlements indirectly in reporting company• Explanation IV – Situation where member is a pooled

investment vehicle• Explanation V – Situation where individual members will be

considered as “acting together”• Explanation VI – share includes GDR, CCP, CCD

What is the relevance of Explanation in Interpretation of Statutes?

Explanation – Interpretation of Statute

An explanation added to a statutory provision is not a substantive provision in any sense of the term but as the plain meaning of the word itself shows it is merely meant to explain or clarify certain ambiguities which may have crept in the statutory provision

Explanatin cannot change the enactment Explanation cannot take away any right[Sundaram Pillai Vs. VR Pattabiraman (AIR)1985SC 582]

Rule Based SBO Guidelines…

Explanation I

Explanation I

If an individual does not hold any right orentitlement indirectly under (i), (ii) or (iii), he will notbe considered as SBO

Means – if Individual is holding rights /entitlements Directly

OR is not holding rights / entitmenet

Explanation II

Explanation II

An individual shall be considered to hold a right or entitlement directly in the reporting company, if he satisfies any of the following criteriaShares are held in the name of individual Individual holds beneficial interest in the share u/s

89(2) and the declaration has been made

Can there be a situation where an individual is holding beneficial interest in the share and has made declaration under Section 89(2)?

Exemptions covered in Benami Transactions Prohibition Act:-Section 2 (9)(iii)any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual(iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual

Explanation V

Explanation V

Acting together – Individual or individuals acting through any person or trust, With common intent or purpose of Exercising any rights or entitlements, or exercising control or

significant influence, over reporting entity Pursuant to an agreement or understanding, formal or

informal Such individuals shall be considered to be “acting together”

Explanation V -Acting Together

What all situations can be covered in “acting together”? For determining the situations of “acting together”, can we

take references from the definition of “Persons acting inconcert (PAC)” from SEBI Takeover Regulations, 2011?

PAC

Explanation VI

Explanation - VI

For the purpose of this clause, Instruments in form of GDR, CCP,CCD will be considered as “shares”

Non-Individual holding CCP/CCD – Individuals behind suchnon-individuals need to be evaluated for determining “IndirectHolding”

Even if CCP / CCD holding may be small in number, it isimportant to evaluate whether they have participation rights,and hence significant influence?

Principles to be followed

Principles to be observed

• While analyzing whether an individual is SBO or not, there canbe 2 approaches – Rule based approach and Principle basedapproach

• The principles of “significant influence”, “control” and “actingtogether”, “acting through” must be checked over and aboveRule based approach

• In case of holding by LLP / partnership entity, all individualpartners can be said to be “acting together”

• In case of body corporate entity, the holding of majority stakeby PAC can be the deciding factor for identifying SBO

Exemptions from SBO Rules

Exemptions from the compliance requirements under SBO Rules IEPF Authority constituted under section 125(5) of the Companies Act, 2013; Holding reporting company - The details of such holding reporting

company shall be reported in Form No. BEN-2. the Central Government, State Government or any local Authority; (i) a reporting company, or

(ii) a body corporate, or(iii) an entity,

controlled by the Central Government or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments; SEBI registered Investment Vehicles such as mutual funds, alternative

investment funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (lnVITs) regulated by SEBI,

Investment Vehicles regulated by RBI, or IRDA, or Pension Fund Regulatory and Development Authority

SBO Rules

Explanation III

Explanation III

• Holding of right / entitlement indirectly• Where member is a body corporate member (whether

incorporated or registered in India or abroad) excluding LLP:-• individual holding majority stake in that member• individual holding majority stake in ultimate holding

company (whether incorporated or registered in India orabroad) of that member

SBO Rules

Definition of Majority Stake

• Majority stake –• more than ½ of equity share capital OR• more than ½ of voting rights OR• right to receive/ participate in more than ½ of

distributable dividend

SBO Rules

If individual holding majority stake in member company is an SBO in reporting company, then whether mathematical formula is to be used for calculation of SBO?

XYZ Pvt Ltd

ABC Pvt Ltd

Individual M

100%

Nominee of ABC Pvt Ltd

• Whether M will be SBO for XYZ Pvt Ltd ?

• If yes, What will be the quantum of Beneficial Interst of M in XYZ Private Limited

51%

Whether LLP will be covered under the term “ultimate holding company” (second layer of holding in reporting company)?

Individual X Individual Y

XYZ Pvt Ltd

ABC Pvt Ltd

PQR LLP

40%

51%

49%

51%

• Whether Individual X and Y will be considered as SBO for XYZ Company?

• Whether PQR LLP will fall in the term – ultimate Holding Company?

• Whether X and Y would be considered as Acting Together?

X & Y are relatives

Explanation III - HUF

Explanation III - HUF

• Holding of right / entitlement indirectly - Where member is aHUF

• Karta can be said to be indirectly holding the rights orentitlements in the shares held by the HUF in reporting company

• Hence Karta can be said to be the SBO for the shares held byHUF in reporting company

SBO Rules

HUF

XYZ P Ltd

Individual M HUF M Karta

• Whether M is to be considered as SBO?

15%3%

Explanation III – Partnership Entity

Explanation III - Partnership Entity

Holding of right / entitlement indirectly where member isPartnership firm / LLP –

• all individual partners• individuals holding majority stake in body corporate which is

a partner in partnership entity• individuals holding majority stake in ultimate holding

company of the body corporate which is a partner inpartnership entity

SBO Rules

Explanation III - Partnership Entity

• Definition of “partnership entity” means partnership firmregistered under Indian Partnership Act, 1932 or a limitedliability partnership registered under Limited LiabilityPartnership Act, 2008.

• So, whether this clause(ii) of Explanation III will include onlyregistered partnerships under Indian Partnership Act 1932 or isit to be read as any partnership formed under IndianPartnership Act 1932?

Whether all partners of partnership entity will be considered as holding the right or entitlement in shares of reporting company indirectly

Whether M, N, O will be considered as SBO for XYZ Pvt Ltd?

Individual M Individual N

XYZ Pvt Ltd

PQR LLP

Individual O

15%

51%45%

4%

ABC & Co. (Partnership Firm)

X HUF (Karta X)

Individual M

5% 95%

Z PVT. LTD.

50%

10%

Whether M will be considered as SBO for Z Pvt Ltd?

Whether Karta X on behalf of X HUF will be held as SBO for Z Pvt. Ltd.?

Explanation III – Trust

Explanation III - Trust

Holding of right / entitlement indirectly where member istrust Discretionary Trust – Trustee [All?] Specific Trust – Beneficiary [All?] Revocable Trust – Author / Settlor [All?]

SBO Rules

Trust

XYZ Pvt. Ltd.

Specific Trust

Individual OIndividual M Individual N

10%

33%33%33%

Whether M, N, O will be SBO for XYZ Pvt Ltd

Explanation V

Acting together – Individual or individuals acting through any person or trust, With common intent or purpose of Exercising any rights or entitlements, or exercising control or

significant influence, over reporting entity Pursuant to an agreement or understanding, formal or

informal Such individuals shall be considered to be “acting together”

SBO Rules

What can be situations of “acting through one or more person”?

ABC Pvt. Ltd.

Individual M

XYZ Pvt. Ltd.

51%

6%

PQR Pvt. Ltd.

5%

100%

• Whether individual M is SBO for PQR Pvt. Ltd.?

• Whether individual M is SBO for XYZ Pvt. Ltd.?

• Exemption of Holding Reporting company can be availed in such case?

Definition of Significant Influence

Significant Influence power to participate directly or indirectly, in the financial and operating policy decisions of

reporting entity but is not control or joint control of those policies

SBO Rules

Explanation V - Questions

Whether MD / CFO / CS who are participating in financialand operating policy decisions will also be said to have“significant influence”?

Actionables under SBO

Actionable on part of SBO

To submit BEN-1 with Reporting Company within 90 days ofamendment (by 9th May 2019)

To monitor any changes in Significant Beneficial Ownership &submit BEN-1 with Reporting Company within 30 days ofchange

For changes, if any, between 8th Feb 2019 to 9th May 2019,additional time period of 30 days will be provided forsubmitting BEN-1 for the change occurred

If any non individual holding more than 10% (does notdisclose) Company needs to send BEN 4

If he does not reply or reply not satisfactory – NCLT NCLT may after hearing pass necessary order

Ordinance/Proposed Amendment

Aggrieved by the order of the Tribunal - make an application to the Tribunal for relaxation or lifting of the restrictions placed within a period of one year from the date of such order (Ordinance)

If no such application has been filed within a period of one year from the date of the order such shares shall be transferred without any restrictions to IEPF (Ordinance)

The CG may Prescribed rules for the manner of transfer to IEPF (Proposed Amendment)

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THE COMPANIES AMENDMENT (ORDINANCE), …...THE COMPANIES AMENDMENT (ORDINANCE), 2019 & THE RECENT...

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