To bring clarity to the disclosure regime for identifying and reporting significant beneficial ownership in Indian companies, the MCA has notified the much-awaited amendments to the 'Significant Beneficial Owners' Rules. Under the amended Rules, individuals and companies are required to fulfil disclosure requirements in respect of reporting of significant beneficial ownership by 8 May 2019.

The Ministry of Corporate Affairs (MCA) on 8 February 2019 (Effective Date) has notified the Companies (Significant Beneficial Owners) Amendment Rules, 2019 (SBO Amendment Rules). The amendments were much-awaited and follow the notification of the principal rules on 14 June 2018, where a shareholding of 10% or more of an Indian company was considered as the threshold for determining 'significant beneficial ownership'. The principal rules caused a stir because of the low threshold of 10% for determination of significant beneficial ownership as compared to the 25% threshold in most of the developed countries. In addition, there were various ambiguities and interpretation issues which were subsequently raised with the MCA by various stakeholders.

The amendments have brought clarity on many of these aspects, although a few ambiguities remain, particularly with respect to the import of 'significant influence' as a criteria for qualifying as a significant beneficial owner (SBO); the basis for determining indirect holdings in an Indian company (Reporting Company); and the extent of scrutiny required to be undertaken by a Reporting Company to identify SBOs. Based on our discussions with officials at the MCA, we understand that a guidance note is expected to be released shortly to address these ambiguities.

While the SBO Amendment Rules have already come into force, a timeline of three months from the Effective Date (i.e. until 8 May 2019) has been provided for SBOs, and a further timeline of thirty days thereafter for Reporting Companies, to comply with their respective disclosure requirements. In our view, it would be advisable to hold off on complying with the disclosure requirements until further clarity emerges pursuant to the anticipated guidance note. In the interim, Reporting Companies could commence the process of identifying SBOs and requesting such SBOs to collate necessary information so that the disclosures can be made in short order, as and when such clarity emerges.

Key Highlights of the SBO Amendment Rules

Pursuant to section 90 of the Companies Act, 2013 (Companies Act) read with the SBO Amendment Rules, a Reporting Company and beneficial owners in the Reporting Company are required to identify SBOs and disclose such SBOs' 'beneficial interest' in the Reporting Company.

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