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Significant Beneficial Ownership Disclosures

📌 Significant Beneficial Ownership (SBO) Disclosures — India

Governing Law:

Section 90, Companies Act, 2013

Companies (Significant Beneficial Owners) Rules, 2018

Linked with anti-money laundering and corporate transparency norms

🧾 1. Who is a Significant Beneficial Owner (SBO)?

An SBO is an individual (not a company) who, acting alone or together, directly or indirectly:

✔ Holds ≥10% shares, or
✔ ≥10% voting rights, or
✔ ≥10% distributable dividend rights, or
✔ Exercises significant influence or control

Even if shares are held through:

Body corporates

Trusts

Partnership firms

Multiple layers

The focus is on the ultimate natural person.

📌 2. Key Principle

Registered shareholder ≠ Real owner.
SBO provisions pierce corporate layers to identify the beneficial controller.

📌 3. Disclosure Obligations

(A) SBO’s Duty

SBO must file declaration to company in Form BEN-1.

(B) Company’s Duty

Company must:

📌 4. When Company Must Act

If company knows or suspects someone is SBO, it must issue notice requiring disclosure — even if person denies status.

📌 5. Consequences of Non-Disclosure

Company may apply to NCLT for order restricting:

Transfer of shares

Voting rights

Dividend rights

This makes shares practically frozen.

📌 6. Situations Triggering SBO Rules

⚖ Key Case Laws Influencing SBO Principles

(SBO is recent, but courts developed doctrines on beneficial ownership & control.)

1️⃣ LIC v. Escorts Ltd (1986 SC)

Distinguished between registered owner and beneficial owner.
👉 Foundation for identifying true ownership.

2️⃣ Vodafone International Holdings v. UOI (2012 SC)

Corporate structures respected unless sham, but control analysis crucial.
👉 Emphasized examining who actually controls entity.

3️⃣ Dale & Carrington Investment v. P.K. Prathapan (2005 SC)

Corporate structure cannot be used for personal control manipulation.
👉 Supports transparency behind ownership.

4️⃣ Needle Industries v. Needle Industries Newey (1981 SC)

Control of company must be exercised bona fide.
👉 Hidden control can be challenged.

5️⃣ Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad (2005 SC)

Recognized concept of control beyond legal ownership.
👉 Key for identifying indirect influence.

6️⃣ Rolta India Ltd v. Venire Industries Ltd (2010 SC)

Corporate veil may be lifted to uncover real actors.
👉 Direct link to SBO concept.

7️⃣ Bacha F. Guzdar v. CIT (1955 SC)

Shareholder rights flow from shareholding, but company separate legal entity.
👉 SBO law bridges this separation.

📌 7. Governance Importance

SBO regime prevents:

Money laundering

Benami shareholding

Tax evasion structures

Hostile hidden takeovers

Political funding opacity

📌 8. Penalties

🎯 Key Takeaway

SBO law enforces:

Transparency → Accountability → Control tracing

It ensures that:

✔ Real owners cannot hide behind layers
✔ Regulators know who controls companies
✔ Minority shareholders are protected

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