Mandatory to Disclose the Real Owner of an Indian Company (SBO)

On 13^th June 2018, the Government of India made it necessary that name of the Significant Beneficial Owner(SBO) is disclosed to the authorities. The ‘Significant beneficial ownership’ of the securities is with a person who either has ‘control’ over the company or ‘beneficial interest’ or ‘significant influence’ over the other that manages the company. The term ‘beneficial interest’ or ‘significant influence’ is not defined under the Companies Act. These terms are not even akin to the term ‘control’ a defined term under the Act. The term ‘beneficial interest’ or ‘significant influence’ is something other than the right to appoint a majority of the directors on the board or to control the policy decisions exercisable by a person either by an agreement or otherwise. A ‘beneficial interest’ may a right to;

• receive rent, profits or dividend;
• inspect the records and obtain copies thereof;
• transfer its interest in the company to another person;
• sue managers for non-performance under their employment agreement, and
• object to the wrongful use of property or any asset of the company by the directors or key managerial persons.

A ‘significant influence’ may be where the relations subsisting between the parties are of such nature that one is in a position to dominate the will of the other and uses that position to obtain an unfair advantage. A person with apparent authority and fiduciary relation would have a significant influence over the other. Judicial scrutiny would bring finality to the manner in which the term ‘beneficial interest’ or ‘significant influence’ would be construed. However, until then one can only hope that it has understood these terms correctly.   Contributed by Mr. Aditya Tiwari, Director – Legal Vertical