Sig­nif­i­cant ben­e­fi­cial own­ers to be pe­nalised for wrong dis­clo­sures

Cor­po­rate Af­fairs Min­istry aims to weed out fraud­u­lent en­ti­ties by amend­ing Com­pa­nies Act

The Hindu Business Line - - NEWS - ISTOCKPHOTO

Sig­nif­i­cant ben­e­fi­cial own­ers in In­dian cor­po­rates might face strict ac­tion for in­ad­e­quate or wrong dis­clo­sures of their own­er­ship, and com­pa­nies too can seek ac­tion against en­ti­ties in case they fail to pro­vide sat­is­fac­tory re­sponses, ac­cord­ing to rules.

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

Apart from pro­vid­ing clearer definitions to de­ter­mine whether an in­di­vid­ual or an en­tity has sig­nif­i­cant ben­e­fi­cial own­er­ship, cor­po­rates will be re­quired to pro­vide the de­tails in a more elab­o­rate man­ner to the Min­istry. Sig­nif­i­cant ben­e­fi­cial own­ers who fail to make a dec­la­ra­tion re­gard­ing their own­er­ship could face a fine, im­pris­on­ment, or both un­der the Com­pa­nies Act. In in­stances where such en­ti­ties have will­fully pro­vided in­cor­rect in­for­ma­tion, they acts would be con­sid­ered as fraud un­der the Act.

Sim­i­larly, com­pa­nies that fail to main­tain reg­istries of sig­nif­i­cant ben­e­fi­cial own­ers would also face ac­tion, as per the rules.

Bring in ac­count­abiliy

Lead­ing con­sul­tancy Deloitte said the spirit of the amend­ment 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.

“The dis­clo­sures re­lat­ing to Sig­nif­i­cant Ben­e­fi­cial Own­ers are ex­pected Sig­nif­i­cant ben­e­fi­cial own­ers who fail to make a dec­la­ra­tion re­gard­ing their own­er­ship could face a fine, im­pris­on­ment, or both

to lead to trans­parency of share­hold­ing struc­tures, and help the govern­ment iden­tify be­nami trans­ac­tions and pre­vent money laun­der­ing ac­tiv­i­ties,” it said in a note.

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 (NCLT) for suit­able di­rec­tions, in­clud­ing freez­ing of rights re­lated to shares.

Le­git­i­macy of firms

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.

Re­gard­ing the amended rules, an of­fi­cial said that the prin­ci­ple of pro­por­tional cal­cu­la­tion has been changed.

“It is very clear on how sig­nif­i­cant ben­e­fi­cial own­ers would be iden­ti­fied in var­i­ous cir­cum­stances... The rules seek to lift the cor­po­rate veil,” the of­fi­cial said.

In its note, Deloitte said that ev­ery sig­nif­i­cant ben­e­fi­cial owner is re­quired to make time-bound dis­clo­sures of their hold­ing in the re­port­ing com­pany and any changes. “The ob­jec­tive is to iden­tify the ul­ti­mate ben­e­fi­cial in­di­vid­ual or group of in­di­vid­u­als who have con­trol or own­er­ship of the re­port­ing com­pany dis­re­gard­ing the in­ter­me­di­ate share­hold­ing by non-in­di­vid­ual per­sons,” it added.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.