Section 90 of the Companies Act 2013: A Detailed Overview

The main purpose of this section is to maintain the register of beneficial owner. That and beneficial owner can only be recognised if his name has been entered in the register of members maintained by the company in which he holds the beneficial interest of the shares even if the shares owned by other person but for that purpose there shall be a declaration which is to be made to the company for declaring the beneficial owner i.e. the person who will enjoys the rights of a beneficial owner. That such declaration to be made has a procedure to be followed by the person for making such declaration, And the company shall maintain the register and report it to the reporting authority or agent.
Who is required to declare?
A person who owns, directly or indirectly, alone or together with other persons, a beneficial interest in shares of the company not less than twenty-five percent (or such other percentage as may be prescribed), or has the right to exercise control over the company including direct power to determine financial and operating policies of the company (referred hereinafter as “significant beneficial owner” in short), by itself or through other natural persons as trustee(s) owning monies for him/her, shall make declaration to the company with regard to his interest specified therein and such further details including acquisition of such interest as may be prescribed within time limit prescribed. This includes any change relating to these interests.

Alternatively, such declaration shall not apply to any class of persons as may be specified by the Central Government under sub-section (1).

1. Understanding Section 90 of the
Companies Act 2013: Significant
Beneficial Ownership (SBO) in India

The Companies Act, of 2013, is a crucial piece of legislation that governs
corporate entities in India. Over the years, it has been subject to various
amendments to keep pace with changing business environments and
global best practices. One such significant provision is Section 90 of the
Companies Act 2013, which deals with significant beneficial ownership in
companies. This article will dive deep into Section 90 of the Companies
Act 2013, explaining its importance, implications, compliance
requirements, and its impact on companies and shareholders.
What is Section 90 of the Companies Act 2013?
Section 90 of the Companies Act 2013 mandates companies to identify
and declare individuals or entities holding "significant beneficial
ownership" (SBO). The provision was introduced to enhance transparency
in company ownership structures and curb issues like money laundering,
fraudulent activities, and the use of shell companies.
A significant beneficial owner is defined as an individual who, either
directly or indirectly, holds a certain percentage of shares or voting rights
or exercises control over the company. The provision ensures that the
ultimate beneficiaries of the company, not just those holding shares in

2. their name, are disclosed. Understanding Significant Beneficial Ownership
(SBO)
A key concept under Section 90 of the Companies Act 2013 is "significant
beneficial ownership." According to the Companies (Significant Beneficial
Owners) Rules, 2018, an individual is classified as an SBO if they meet one
or more of the following criteria:
• Direct or indirect ownership: Holding at least 10% of the shares or
voting rights in a company.
• Direct or indirect control: Having the right to participate in decision-
making or influence the company’s board of directors.
• Indirect financial interest: Holding a significant share in the
company's financial benefits, such as dividends or other forms of
profits.
These conditions are set to ensure that companies disclose the true
identities of those who have a major influence on the operations and
decisions of the company, even if they hold ownership through proxies or
indirect channels.
Filing of Significant Beneficial Ownership Declaration
Under Section 90 of the Companies Act 2013, companies are required to
take specific steps to identify and declare their SBOs:
1. Notice to Shareholders: The company must issue a notice to all its
shareholders asking them to declare whether they hold any
significant beneficial interest in the company. This is done using
Form BEN-4.
2. Declaration by SBO: Individuals who qualify as SBOs must file a
declaration with the company in Form BEN-1. This form contains all
relevant details about the individual's ownership, including the
manner in which they exercise control or hold shares.
3. Company’s Responsibility: After receiving the declaration, the
company must file a return with the Registrar of Companies (RoC) in
Form BEN-2. This return will provide details of all significant
beneficial owners of the company.
4. Register of SBOs: Companies are also required to maintain a register
of all their SBOs in Form BEN-3. This register should include the
name, address, and other pertinent details of all declared beneficial
owners.

3. Penalties for Non-Compliance under Section 90
Non-compliance with Section 90 of the Companies Act 2013 can lead to
severe penalties for both companies and SBOs. If a company or an
individual fails to declare significant beneficial ownership, the law
prescribes the following actions:
• Penalty for SBO: An individual who fails to make the declaration may
face fines ranging from Rs. 1 lakh to Rs. 10 lakh, along with a daily
fine of Rs.
1,000 for every day of default after the initial penalty.
• Penalty for Company: Companies that fail to comply with the
requirements of Section 90, such as issuing notices or maintaining
the SBO register, are liable for fines ranging from Rs. 10 lakh to Rs.
50 lakh. Additionally, every officer in default will be liable for fines
between Rs. 1 lakh to Rs. 10 lakh, with an additional Rs. 1,000 for
each day of default.
In extreme cases of persistent non-compliance, the government may take
further legal action, which can even result in the suspension of certain
rights related to shares.
Exemptions under Section 90
There are certain exemptions under Section 90 of the Companies Act
2013. Some categories of entities are not required to declare their
significant beneficial ownership, including:
• Central or state governments and government-owned entities.
• Entities regulated by any financial regulator, such as SEBI, RBI, or
IRDA.
• Investment vehicles like mutual funds, venture capital funds, and
alternative investment funds regulated by SEBI.
These exemptions ensure that the rule applies primarily to private
individuals and businesses where issues of transparency are more critical.
Importance of Section 90 of the Companies Act 2013
The introduction of Section 90 of the Companies Act 2013 was a
significant step toward enhancing corporate transparency in India. It aligns
the country’s corporate governance framework with global best practices,
particularly those aimed at curbing financial fraud, tax evasion, and
money laundering.
Here are some of the critical benefits of Section 90:

4. 1. Prevention of Illegal Activities: By ensuring that companies disclose
their actual beneficial owners, Section 90 makes it more difficult for
individuals to hide behind complex ownership structures for
unlawful purposes, such as money laundering or funding terrorism.
2. Enhanced Corporate Governance: The provision boosts corporate
governance by ensuring that those in control of the company are
held accountable. This makes it easier for authorities and regulators
to trace the source of capital in businesses, which helps maintain
the integrity of the financial system.
3. Investor Protection: Section 90 also protects minority shareholders
by giving them a clear understanding of who holds significant power
within the company. This can help prevent conflicts of interest and
ensure fair treatment for all shareholders.