Updated KYC requirement for directors, deadline August 31, 2018

The Ministry of Corporate Affairs (MCA) has amended the filing requirements relating to director identification numbers (DIN) and issued these under the Companies (Appointment and Qualification of Directors) fourth amendment Rules, 2018 (KYC Rules). DIN is a number allotted by the central government of India to any individual, intending to be appointed as director or to any existing director of a company, for the purpose of his identification as a director of that company, and also includes the designated partnership identification number for LLPs.

The KYC Rules impose a deadline of 31st August 2018 for submission of KYC details for those directors who already have a DIN as at 31 March 2018. The KYC details need to be submitted in an e-form available on the MCA website (KYC Form).

Going forward all directors (who are individuals) with an allotted DIN on 31st March of a financial year would be required to submit their details in the KYC Form to the MCA on or before 30th April of the next financial year.

The KYC Form requires a director to provide extensive personal details, and their personal mobile number, digital signatures and certified copies of their passports to enable submission of the form electronically. Failing to meet the submission deadline may lead to a directors’ DIN being deactivated by the authorities (this can be reactivated by the director upon payment of a late filing fee of Rs.5,000).

Please click here for a copy of the KYC Rules and the KYC Form (DIR-3-KYC).

Declaration of significant beneficial ownership in Indian companies, deadline September 13, 2018

On 13 June 2018, the MCA issued the Companies (Significant Beneficial Owners) Rules, 2018 (SBO Rules) which amend section 90 of the Indian Companies Act 2013 (Act) relating to the investigation of beneficial ownership of shares. Indian companies are required to maintain a register of significant beneficial owners (SBO) and file a return with India’s registrar of companies to furnish details about their SBOs. The SBO filing requirements are akin to the people with significant control (PSC) regime in the UK, except that the SBO thresholds for being identified as significant holders has been set at 10% of a members’ holding (as opposed to 25% in the UK for a PSC).

A beneficial holding by a person in a company may arise directly, indirectly through any contract or arrangement with the company, or as a right of entitlement to exercise rights attached to shares or receive dividends or distributions with respect to shares. Under section 89 of the Act, members already have an obligation to make a declaration in respect of the beneficial interest in any shares of the company where the member whose name is entered in the register of members does not hold the beneficial interest in such shares.

A SBO is any individual whose name is not entered in the register of members, but who either alone or jointly with other person(s) (including trusts resident outside India) holds not less than 10% of the share capital of the company, or directly or indirectly exercises control or significant influence over the company. Where shareholders are partnership firms or trusts (through trustee), the SBO would be the person(s) or beneficiaries with not less than a 10% interest in the entitlement to profits of partnership, or any other natural person exercising ultimate effective control over the trust through a chain of control or ownership. If no natural persons are identifiable as SBOs then the person holding the position of senior managing official (such as a director) of the company (required to make the filing) would be the SBO.

Under the SBO Rules the requirement to make a declaration has been imposed on both the company and each individual SBO. Therefore, any Indian company is required to give notice to any person whom it has reason to believe is a SBO (or has been a SBO in the preceding three years) in a prescribed form (Form No. BEN-4) requiring the relevant person to provide relevant details. Regardless of whether a company has sought disclosure from SBOs, a person who has a certain degree of control over an Indian company (to match the 10% thresholds described above) is also required to declare to the company various details regarding their interest in a prescribed form (Form No. BEN-1), details such as reasons for not registering shares in their name, or direct/indirect percentage of voting rights etc.

Individuals who are currently SBOs in an Indian company must ensure compliance with the SBO Rules prior to 13 September 2018, and the creation of new SBOs or changes to a SBOs holding must be declared within 30 days from the relevant event. Therefore, timely compliance with the SBO Rules is advisable to avoid fines or court proceedings (initiated by the company) for restrictions or suspension of rights attached to the shares.

The SBO Rules do not apply to companies or body corporates which are pooled investment vehicles or investment funds regulated under the SEBI Act (such as mutual funds, REITs etc.)

A copy of the SBO Rules and requisite forms can be found here.