Group CEO held to be significant beneficial owner in LinkedIn India

The emergence of money laundering as a serious threat to the international financial system led to the establishment in 1989 of an inter-governmental body in the form of the Financial Action Task Force (FATF), which was mandated to prescribe various standards to curb this menace. ¹ An important FATF recommendation, inter alia, is "Recommendation 24" that seeks to identify beneficial ownership (BO) of legal persons with an objective to prevent the misuse of corporate vehicles for money laundering or terrorist financing. ² India has been a FATF member country since 2010 ³ and in compliance with FATF Recommendation 24 has mandated BO and significant beneficial owner (SBO) provisions in the Companies Act 2013, ⁴ under the Ministry of Corporate Affairs, which makes it incumbent upon companies to disclose and maintain a register of their BOs. The law governing BO has been codified under section 89 (Declaration in respect of beneficial interest in any share) and section 90 (Register of significant beneficial owners in a company) of the Companies Act, 2013 read with concomitant rules, including the Companies (SBO) Rules 2018 and Companies (Significant Beneficial Owners) Amendment Rules 2019. From sections 89 and 90, it can be inferred that an individual has primary responsibility to disclose information regarding SBO to the company, while the company has secondary responsibility to take necessary steps to identify the SBO and ensure that it complies with all disclosure requirements. The primary difference between sections 89 and 90 is that section 89 focuses on the declaration of beneficial interest in a share, while section 90 is concerned with identifying the SBO. Whereas section 90 requires a minimum 25 per cent shareholding in a company for the purposes of identifying the SBO, the SBO Rules require an individual to directly or indirectly hold at least 10 per cent of shares, voting rights, or entitlements to dividends in a company. Additionally, a conspicuous feature of the SBO rules is that it includes individuals who "have the right to exercise, or actually exercise, significant influence or control, in any manner other than through direct holdings alone". The objective of this paper is to analyse whether 'the right to exercise significant influence or control over a company through means other than direct holdings' can lead to an individual being held as a SBO.