Compliance For "BENEFICIAL INTEREST" As Per Companies Act 2013

Investment in shares is a usual segment of an Investment portfolio of individuals and organisations. There are many lucrative corporations whose shares and voting rights are always high in demand. This situation gives a rise to phenomenon, "Beneficial Interest". But before moving ahead with the Compliance, first let's understand beneficial interest, registered owner, and beneficiary owner.

Beneficial Interest in Shares

If you go for the dictionary meaning then as per the Cambridge Business English Dictionary, beneficiary Interest means the right to receive income, profits, interest etc. from a business, contract, or investment.

As per Section 89 sub-section (10) of the Companies Act 2013, 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.

Registered Owner

He is the Person or entity whose name is entered as shareholder in the Register of Member.

Beneficial Owner

He is the Person or entity whose name is not entered as shareholder in the Register of Member but derived or receives all the benefits arising from the shares like dividend, voting rights etc.

 

Let’s take a practical example, Mr X. opens a Demat account with “CDSL” (Central Depository Service (India) Ltd) who is a Depository though the Depository Participant (DP), Mr. Broker. Now as securities are held in dematerialised form. When there is a purchase of shares, the shares are registered in the name of “CDSL” in the register of issuing company and not in the name of Mr. X.

Here, the registered owner is “CDSL” but the beneficiary owner will be Mr. X.

Compliance under Companies Act

As per Section 89 of the Companies Act 2013 as amended for time to time, there is compliance to be accomplish in case of "Beneficiary Interest in shares" by Registered Owner, Beneficiary Owner and Company. To ensure clarity, we will discuss them one by one.

Compliance in Case of Registered Owner

• The registered owner has to give a “Declaration” to the Company with details of Beneficiary owner in the manner prescribed. 
• Form – Declaration is to be given in Form No. MGT. 4. 
• Time – 30 days from the date of entering name in the register of members of such company. 
• Further change in the beneficiary interest – then again the registered owner has to give a “Declaration” to the Company with details of Beneficiary owner in Form No. MGT.4 within 30 days from the date of change.

Compliance in Case of Beneficiary Owner

• The beneficiary owner has to give a “Declaration” to the company specifying his interest, details of registered owner and others prescribed. 
• Form – Declaration is to be given in Form No. MGT. 5. 
• Time – 30 days from the date of acquiring such beneficiary interest. 
• Further change in the beneficiary interest – then again the beneficiary owner has to give a “Declaration” to the Company with details of change in Form No. MGT.5 within 30 days from the date of change.

Company

• Once the declaration is received by the company from the registered owner or beneficiary owner. The company has to file a Return with ROC (Registrar of Companies) with fee. 
• Noting in Register of Member - The Company make a note in the register of members. 
• Return – Return is to be made in Form No. MGT. 6. 
• Time - 30 days from the date of receipt of declaration. 
• Days counting – 30 days will be counted from the date of receipt of declaration of Registered Owner and Beneficiary Owner, whichever is later.

Non-Applicability 

These provisions are not applicable on Trust formed as Mutual Funds or Venture Capital Fund or such other fund as may be approved by SEBI (Security and Exchange Board of India).

Non Compliance

The Non Compliance of Section 89 of the Act will attract fine :- 

In Case of Beneficiary Owner or Registered Owner

• In case of non-compliance by beneficiary owner or registered owner without any reasonable cause. They will be fined upto ₹ 50,000 (Rupees Fifty Thousand). 
• In addition to above if the failure is continuing one. The further fine may be charged of ₹ 1000 (Rupees One Thousand) for every day of continuing default after first failure.

In Case of Company

• In case of non-compliance by the Company. The company and every officer in default shall be punishable with a fine. 
• Fine shall not be less than ₹ 500 (Rupees Five Hundred), which may be extended to ₹ 1000 (Rupees One Thousand). 
• In addition to above if the failure is continuing one. The further fine may be charged of ₹ 1000 (Rupees One Thousand) for every day of continuing default after first failure.

  

I hope this blog will be helpful to all the readers. This is all about beneficiary interest as per Companies Act. Please due share with your friends and family. For any comments and queries please go to the comment box below.

Disclaimer :

The above blog is purely for educational and  guidance purpose. It's just the reflection of the author's personal experience and judgment. The author has just provided the general information & understanding and its not at all an alternative of any legal advice or practitioner. It has no connection with the websites mentioned in its contents. The content stated in the blog should be used by the reader at his own discretion and sole responsibility. The content of the blog can be only used for any other document, write-up, article, blog and any written or printed material whether on paper or digitally in any form, with the prior permission of the author.