India: New Beneficial Ownership Rules – Transactional Implications


Following through on India's commitment to align its regulatory framework with the recommendations of the Financial Action Task Force, to check the misuse of multi-layered corporate entities for money laundering and other illegal activities, the Ministry of Corporate Affairs (MCA), vide the Companies (Amendment) Act, 2017 (Amendment Act), amended the Companies Act, 2013 (Act) with an intent to strengthen beneficial ownership disclosures.

Pursuant to the Amendment Act, for the first time, a definition of 'beneficial interest' was introduced and also new disclosure and filing requirements were specified for 'significant beneficial owners'. To give effect to the filing requirements, the MCA notified the Companies (Significant Beneficial Owners) Rules, 2018 (SBO Rules) that brought about a paradigm shift under corporate law by prescribing detailed requirements to identify the ultimate individual owners of a company in order to disregard opaque and intermediate corporate structures. The SBO Rules were subsequently amended through the Companies (Significant Beneficial Owners) Amendment Rules, 2019 (New SBO Rules) to bring in clarity wherever it was lacking. The first SBO filings under the New SBO Rules were due on 8 May 2019.

While the trigger of these changes is to bring in greater transparency and control, as a practical matter, there are now more compliances and issues for parties to consider as part of deal making.

The concept of 'beneficial interest' and 'significant beneficial owners'

The concept that a share could have a registered owner different from the actual beneficial owner of such share is not a new phenomenon under Indian corporate law. Section 187C of the erstwhile Companies Act, 1956 permitted a shareholder to assign the beneficial interest in a share to another person (including corporate entities).

However, there was no definition for 'beneficial interest' or 'beneficial ownership' provided under company law. Under the erstwhile Section 187C of the Companies Act, 1956, the generally accepted trigger for disclosure was when shares were held by persons for the benefit of other persons as nominees of the latter. Indirect beneficial interests such as voting agreements, etc., were generally never reported. This understanding, however, was completely overhauled when the Amendment Act notified the definition of 'beneficial interest' in Section 89(10) of the Act. This definition is very widely worded and includes interests held 'directly or indirectly', whether 'through a contract, arrangement or otherwise', as a 'right or entitlement' of a person acting 'alone or together with any other person' in relation to a share.

Separately, Section 90 of the Act requires every individual who is identified as a significant beneficial owner (SBO) of a company to make a declaration to the company specifying, inter alia, the nature of the beneficial interest held by the SBO. Note that the SBO should ultimately be an individual, who acting alone, or in conjunction with other persons, meets any of the following conditions: (i) holds not less than 10% shares, voting rights or dividends; or (ii) exercises or has the right to exercise 'control' or 'significant influence', over a company. A caveat here is that only direct shareholding is excluded from the purview of the above items.

The key distinction between Sections 89 and 90 is that while Section 89 is concerned with declaration of 'beneficial interest' in a share, Section 90 deals with identification of SBO. Under Section 89: (a) a registered owner who does not hold beneficial interest; and (b) a holder of beneficial interest (both juristic and natural persons), both need to make filings. Moreover, the person disclosed as holder of beneficial interest has rights created in respect of the shares for which the declaration is made. Under Section 90, the SBO alone is required to make a declaration, and the Company is also under an obligation to issue notices demanding information and disclosures from individuals that it reasonably believes to be SBOs – i.e., to virtually look through all legal structures to identify the ultimate natural person behind the layers of artificial legal entities who meet the tests prescribed for an SBO. There is no additional right or interest created in favour of the SBO over the shares for which an SBO declaration is made.

Transactional Implications

Post notification of the 'beneficial interest' definition, every share now needs to be looked at as a bundle of rights (right to vote, right to receive to dividends, etc.) and each right attached to a share is capable of being assigned to another person. Therefore, one share can have multiple beneficial owners. This may require investors to revisit all their existing shareholder agreements, voting agreements, etc. to evaluate whether the rights created under those agreements have triggered filing requirements under Section 89 of the Act. Additionally, compliances for SBO filings will also need to be factored in.

Some key points to consider, include:

Structuring Parties use opaque structures as part of better structuring options. The SBO filings which will contain information of the ultimate beneficial owners may provide ammunition to tax authorities to look through some of the structures. Although the law doesn't contemplate sharing of filings with tax authorities, the public access to the SBO forms may lead to practical issues – the possibility of tax authorities to use this to deny benefits/question the bona fides of a group structure cannot be ruled out.

Due Diligence Due diligence exercise on determination of ownership will broaden in scope. The possibility of multiple holders of beneficial interest may pose new challenges for diligence – for instance, as part of diligence, one will have to examine whether declarations for all beneficial interests held with respect to a share have been duly filed. Also, whether the SBO determination is accurate and relevant filings have been made. From a purely compliance perspective, diligence checklists will also feature requests for review of SBO register, beneficial interest filings and SBO filings etc.

Documentation From an investor perspective, representations on ownership have to be robust to ensure all aspects of definition of 'beneficial interest' are adequately covered. Further, for full title to shares, investors will have to complete acquisition of beneficial interests held with respect to shares from all such holders of beneficial interest. Moreover, in this multiple beneficial interest holders' scenario, there are likely to be practical issues in completion of the transfer – for instance, how to deal with payment of consideration and filings under exchange control regulations when the non-resident/resident holds only a part of the beneficial interest. In a share subscription scenario, the company may want the investor to complete the SBO filings in connection with the transaction. It is pertinent to note that, pursuant to the Amendment Act, there is an obligation on the Company to investigate and identify the SBO. Given this, the pragmatic approach for all parties involved would be to agree upon the basis and extent of the information proposed to be declared in the SBO filings as a part of the transaction documents. Interestingly, this will also be relevant in case of secondary transfers. Accordingly, these filings have to be appropriately documented in the transaction documents as post-closing filings.

Voting arrangements As the definition of beneficial interest is wide and broad enough to include various rights, the presence of voting arrangements could trigger creation of beneficial interest. The principle to be mindful of is whether the right in respect of which the interest is created is a right attached to the share or a mere contractual commitment – for a right attached to a share, a beneficial interest is created; however, a mere contractual commitment will most likely not result in the creation of a beneficial interest. While in theory this is well understood, the assessment gets more complex depending on how such voting arrangements are recorded. For instance, if a shareholder A has the right to direct/exercise the voting rights attached to shares held by shareholder B – in such a case, A will have beneficial interest in the shares held by B. Taking an example of a typical further assurances clause – a mere enabling clause that parties will vote with each other to give effect to matters agreed under the shareholders' agreement is not likely to be construed as creation of beneficial interest as this is a mere contractual commitment as opposed to the creation of a right or entitlement in favour of one shareholder to direct or cause the other party to exercise its voting rights in a certain manner. Similarly, veto rights are also not likely to result in the creation of a beneficial interest as the holder of the veto right does not have the right or entitlement to cause the other shareholders to vote in a particular manner. The veto right only bestows the holder with the power to block the target company from approving a specific item / resolution.

Way forward

Although the intention behind introduction of the new significant beneficial ownership regime by the Government probably was to curb the use of multi layered corporate structures for money laundering and tax evasion purposes by individuals, they have also increased complexities and compliances in regular and bona fide deal making. Investors in addition to diligence, will have to ensure that requisite filings and disclosures have been made by all the concerned parties to avoid any future claims questioning the capacity and/or authority of the seller to transfer the shares.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions