Secretarial Insights

February 2026

Index

1	Introduction
2	Who is a Significant Beneficial Owner?
3	Distinction Between Registered Owner and Beneficial Owner
4	Reporting Obligations of Significant Beneficial Owner
5	Obligations of the Reporting Company
6	Step-by-Step Compliance Process
7	Consequences of Non-Compliance
8	Role of the Company Secretary
9	Practical Challenges in SBO Identification
10	Conclusion

Significant Beneficial Ownership (SBO) Under the Companies Act, 2013 – Compliance Framework and Practical Guidance

Dear Reader,

The Company Secretary Team at UJA is pleased to present a comprehensive overview of External Commercial Borrowings (ECB), an important mechanism under India’s foreign exchange regulatory framework that enables eligible Indian entities to access foreign capital in a regulated manner.

This article aims to provide a clear understanding of the concept and scope of ECBs, the legal framework governing such borrowings under the Foreign Exchange Management Act, 1999 (FEMA) and the Reserve Bank of India (RBI) Master Directions and the various instruments that qualify as ECBs. It also explains the eligibility criteria for borrowers and recognized lenders, along with the routes available for raising ECBs—namely, the Automatic Route and the Approval Route.

Special emphasis has been placed on the ECB reporting and filing requirements, including the timelines, forms to be filed at different stages of the borrowing lifecycle and the role of the Authorized Dealer (AD) Category-I Banks. The article further highlights critical aspects such as end-use restrictions, all-in-cost ceilings and minimum average maturity requirements, which are essential for ensuring regulatory compliance.

Through this write-up, we seek to simplify the regulatory provisions relating to External Commercial Borrowings while underscoring the importance of timely reporting, adherence to RBI norms and strict compliance with FEMA provisions to avoid penal consequences.

We hope you find this article informative and useful in enhancing your understanding of ECB regulations and compliance requirements under Indian foreign exchange laws.

For feedback or topic suggestions, please write to us at cs@uja.in.

Introduction

Corporate structures often involve multiple layers of ownership, including holding companies, subsidiaries, trusts and partnership entities. In such arrangements, the registered shareholder may not always be the ultimate beneficial owner.

To enhance transparency and curb misuse of corporate vehicles, Section 90 of the Companies Act, 2013 mandates disclosure of SBO. This is further operationalized under the Companies (Significant Beneficial Owners) Rules, 2018. The objective is to identify natural persons who ultimately hold beneficial interests or exercise significant influence or control over a company.

Key Regulatory References:

Section 90, Companies Act, 2013 – Disclosure of beneficial ownership and associated penalties
Companies (Significant Beneficial Owners) Rules, 2018 – G.S.R. 170(E), dated 14 Feb 2019
MCA Notification (16 Oct 2020) – Clarifications on layered structures, indirect holdings and exemptions
Companies (Amendment) Act, 2017 – Enhanced penalties and stricter reporting timelines

Who is a Significant Beneficial Owner?

An individual is considered a Significant Beneficial Owner (SBO) if he/she:

Holds, directly or indirectly, ≥10% of shares; or
Holds ≥10% of voting rights; or
Has the right to receive ≥10% of distributable dividend or any other distribution; or
Exercises significant influence or control in any manner other than through direct holdings alone.

The key element is the identification of the natural person, even if holdings are routed through:

Body corporates
Partnership firms
Trusts
Multi-layered entities

Clarifications:

Indirect holdings are computed using aggregate percentage control through intermediate entities.
Nominee arrangements or trustee holdings must be disclosed if they meet the 10% threshold.

Distinction Between Registered Owner and Beneficial Owner

Registered Owner: Name appears in the register of members.
Beneficial Owner: Person who ultimately enjoys benefits or exercises control.

Where the registered shareholder is a company, LLP or trust, the reporting company must trace ownership until it identifies the ultimate natural person meeting the prescribed threshold.

Rule Reference:

Rule 3(1), SBO Rules 2018 – Identification of beneficial owners through indirect or direct holdings

Reporting Obligations of Significant Beneficial Owner

Every individual who qualifies as an SBO must:

Submit a declaration in Form BEN-1 to the company within 30 days of acquiring such beneficial interest.
Submit updated declaration within 30 days of any change in SBO status.

Penalties:

Section 90(10): Penalty of ₹1,00,000 for non-compliance
Further default may attract a continuing penalty of ₹5,000 per day until compliance is achieved

Obligations of the Reporting Company

Upon receipt of BEN-1, the company must:

File Form BEN-2 with the Registrar of Companies (ROC) within 30 days.
Maintain a Register of SBO in Form BEN-3, available for inspection.
Issue notice in Form BEN-4 to any person it believes to be an SBO or having knowledge of an SBO.
Take necessary steps to identify beneficial ownership in case of non-response.

Rule Reference:

Rules 4–7, SBO Rules 2018 – Company obligations and compliance process

Step-by-Step Compliance Process

Step 1: Identification of Potential SBOs

Examine shareholding structures, including subsidiaries and layered entities.
Trace ultimate natural persons holding ≥10%.

Step 2: Issue BEN-4 Notice (if required)

Provide 30 days for response.

Step 3: Receipt of BEN-1 Declaration

Collect declaration with supporting evidence, such as share certificates or trust deeds.

Step 4: Filing with ROC

Submit BEN-2 with declaration attachments within timelines.

Step 5: Register Maintenance

Update BEN-3 register regularly.
Ensure availability for statutory inspection.

Consequences of Non-Compliance

Monetary penalties on the company and officers in default (Section 90(10)).
Restrictions on transfer of shares.
Suspension of rights attached to shares.
Prosecution proceedings in severe cases (Sections 447 & 448, Companies Act, 2013).
NCLT may impose restriction orders where SBO information is not furnished.

Role of the Company Secretary

The Company Secretary plays a central role in SBO compliance:

a) Structural Review:
- Analyze group shareholding pattern.
- Identify indirect holdings and layered ownership.
b) Governance Oversight:
- Place matters before the Board.
- Ensure passing of necessary resolutions.
c) Regulatory Filings:
- Oversee timely filing of BEN-2.
- Maintain statutory registers.
d) Risk Mitigation:
- Periodically review shareholding.
- Monitor ownership changes.
- Maintain documentary evidence for regulatory scrutiny.

Practical Challenges in SBO Identification

Multi-layered foreign holding structures
Trust arrangements and nominee shareholders
Cross-border entities with limited disclosure norms
Complex indirect shareholding through multiple intermediaries

Mitigation:

Proper documentation, legal analysis and coordination with stakeholders are essential for accurate disclosure.

Conclusion

The Significant Beneficial Ownership framework is a cornerstone of corporate transparency and accountability. It ensures that ultimate control and economic interest in companies are not obscured behind complex ownership structures.

A disciplined compliance approach, supported by thorough documentation and periodic monitoring, is essential to avoid penalties and regulatory intervention. The Company Secretary, as a governance professional, plays a crucial role in implementing and sustaining this compliance framework.

By proactively identifying beneficial owners and adhering to reporting timelines, companies strengthen:

Investor confidence
Regulatory credibility
Corporate governance standards

About UJA

UJA Global Company Secretary team specializes in offering a wide range of corporate compliance and governance solutions, ensuring seamless regulatory adherence for businesses of all sizes.

Our Comprehensive Services Include:

Corporate Compliance & Secretarial Services
Regulatory Filings & Annual Compliance Management
Drafting & Reviewing Board Resolutions & Policies
Due Diligence & ROC Filings
SEBI, Stock Exchange & Listing Compliance
Company Incorporation & Business Structuring
Corporate Governance Advisory
Shareholder Agreements & Corporate Structuring
FEMA & RBI Compliance
Winding Up & Business Closure Support

UJA Global supports businesses in navigating the complexities of corporate laws, regulatory frameworks and compliance mandates across various jurisdictions. With operations spanning France, Germany, Japan, Spain and more, we help companies ensure seamless corporate governance and risk management.