Section 89: declaring beneficial interest in shares

Introduction

Section 89 came into force on 1 April 2014 under S.O. 902(E). The Companies (Amendment) Act, 2017 (1 of 2018) amended it in two stages. Clauses (i) and (ii) of its section 21 (changes to sub-sections (6) and (7)) came into force on 7 May 2018 under S.O. 1833(E). Clause (iii), which inserted sub-section (10), came into force on 13 June 2018: S.O. 2422(E) of that date, as corrected by Corrigendum S.O. 3020(E) of 21 June 2018, reads "Clause (iii) of Section 21 and Section 22".

The Companies (Amendment) Act, 2020 replaced the penalties in sub-sections (5) and (7) from 21 December 2020 (S.O. 4646(E)) and added the exemption power in sub-section (11) from 22 January 2021 (S.O. 325(E)). Read section 89 with section 90 (significant beneficial owners) and the current rules.

Key takeaways

Who must declare

Sub-section (1) applies to a person whose name is entered in the register of members as the holder of shares but who does not hold the beneficial interest in them. That person declares to the company, within the prescribed time and form, the name and other particulars of the person who holds the beneficial interest.

Sub-section (2) applies to every person who holds or acquires a beneficial interest in a share. That person declares the nature of the interest, the particulars of the person in whose name the shares are registered and other prescribed particulars. When the beneficial interest changes, both of them must declare the change within thirty days (sub-section (3)).

Rule 9 of the Companies (Management and Administration) Rules, 2014 is headed "Declaration in respect of beneficial interest in any shares". Check its current text for the forms, time limits and particulars. The Central Government may make rules on the manner of holding and disclosing beneficial interest (sub-section (4)).

• India Code — consolidated Companies Act, 2013, section 89
• eGazette — Companies Act, 2013 (18 of 2013), as enacted
• eGazette — S.O. 902(E), 26 March 2014 (commencement from 1 April 2014)
• eGazette — Companies (Amendment) Act, 2017 (1 of 2018)
• eGazette — S.O. 1833(E), 7 May 2018 (commencement of Act 1 of 2018, including clauses (i) and (ii) of section 21)
• eGazette — S.O. 2422(E), 13 June 2018 (commencement of Act 1 of 2018 provisions from 13 June 2018)
• eGazette — Corrigendum S.O. 3020(E), 21 June 2018 (adds clause (iii) of section 21 to S.O. 2422(E))
• eGazette — Companies (Amendment) Act, 2020 (29 of 2020)
• eGazette — S.O. 4646(E), 21 December 2020 (commencement of Act 29 of 2020, including clauses (a) and (b) of section 18)
• eGazette — S.O. 325(E), 22 January 2021 (commencement of Act 29 of 2020, including clause (c) of section 18)
• eGazette — Companies (Management and Administration) Rules, 2014, G.S.R. 260(E)
• eGazette — Companies (Significant Beneficial Owners) Rules, 2018, G.S.R. 561(E)
• eGazette — G.S.R. 463(E), 5 June 2015 (exemptions for Government companies)

What "beneficial interest" covers: sub-section (10)

Sub-section (10) applies for section 89 and section 90. Beneficial interest in a share includes the right or entitlement of a person, alone or with any other person, to exercise or cause to be exercised any or all of the rights attached to the share, or to receive or participate in any dividend or other distribution on it. The right may be held directly or indirectly, through any contract, arrangement or otherwise.

Commencement: India Code footnotes sub-section (10) as in force from 13 June 2018. The official basis is S.O. 2422(E) of 13 June 2018 read with Corrigendum S.O. 3020(E) of 21 June 2018. As first printed, S.O. 2422(E) listed "Section 22" but not clause (iii) of section 21. The corrigendum directs that it be read as "Clause (iii) of Section 21 and Section 22".

Company’s duty: note and return

When a declaration is made, the company notes it in the register concerned. It then files a return with the Registrar in the prescribed form, with the prescribed fees or additional fees, within thirty days of receiving the declaration (sub-section (6)). Before 7 May 2018 sub-section (6) also referred to "the time specified under section 403". Act 1 of 2018, section 21(i), omitted those words.

Penalties

A person who fails to make a declaration under sub-section (1), (2) or (3) is liable to a penalty of fifty thousand rupees. For a continuing failure there is a further penalty of two hundred rupees for each day after the first, up to five lakh rupees (sub-section (5)).

If the company does not file the return under sub-section (6) in time, the company and every officer in default are liable to a penalty of one thousand rupees for each day the failure continues. The maximum is five lakh rupees for the company and two lakh rupees for an officer in default (sub-section (7)).

These penalty provisions were substituted by the Companies (Amendment) Act, 2020 from 21 December 2020. Before that date, the 2013 text of both sub-sections provided for fines.

Dividends and exemptions

Section 89 does not affect the company’s obligation to pay dividend to its members, and paying the dividend discharges that obligation (sub-section (9)). Under sub-section (11), the Central Government may by notification exempt any class of persons from any requirement of the section except sub-section (10), unconditionally or subject to conditions, if it considers this necessary in the public interest.

G.S.R. 463(E) of 5 June 2015 states that section 89 "Shall not apply" to Government companies. That notification predates the 2018 and 2020 amendments, and later changes to it were not consolidated here, so confirm the current position before relying on it.

Practical preparation

Identify every nominee or other registered holding where someone else holds the beneficial interest. Obtain both declarations, and a fresh declaration within thirty days of any change. Note each declaration in the register concerned and file the return with the Registrar within thirty days of receipt. Where an individual’s beneficial interest may reach the significant beneficial owner level, also review section 90 and the Companies (Significant Beneficial Owners) Rules, 2018.

Practical checklist

Glossary

Registered holder

The person whose name is entered in the register of members as the holder of the shares.

Beneficial interest

For sections 89 and 90, it includes the rights described in section 89(10): exercising rights attached to a share, or receiving or participating in its dividend or other distribution, directly or indirectly.

Beneficial owner

The person who holds or acquires the beneficial interest in a share and must declare it under section 89(2).

Frequently asked questions