[Ambika Mehrotra is a Manager at Vinod Kothari & Company in its Corporate Law Services Division]
In the interest of investors in the securities market and with a view towards better corporate governance, the Securities and Exchange Board of India (“SEBI”) has taken steps to widen the scope of compliances for listed entities. Accordingly, to bring in more transparency for investors, SEBI has introduced with yet another disclosure requirement by which all listed entities shall be required to disclose the details pertaining to significant beneficial owners along with their shareholding pattern in the format prescribed in SEBI’s circular dated 7 December, 2018. Although the circular is clear on the requirement of reporting details from the quarter ending 31 March 2018, the disclosure regarding significant beneficial owners (“SBOs”) to the stock exchange in itself is an ambiguous requirement in the present scenario.
Though the reporting of SBOs to the stock exchange pursuant to the said circular may be considered yet another compliance requirement for listed entities, which are already laden with multiple disclosure and reporting requirements owing to the recent amendments in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the same has been brought in line with the Companies (Significant Beneficial Owners) Rules, 2018 (“SBO Rules”) which were notified by the Ministry of Corporate Affairs (“MCA”) by way of its notification dated 14 June, 2018. Accordingly, the said circular represents a stride by SEBI to keep pace with the SBO Rules and their reporting requirements prescribed by the MCA.
Brief Background
The SEBI circular states that the reporting shall be undertaken in an additional table, i.e., Table V, which is provided along with the shareholding pattern required to be reported under regulation 31 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”). The format for the disclosure of holding of specified securities and shareholding pattern under the said regulation was earlier prescribed by SEBI through its circular dated 30 November, 2015. That circular inter alia provided for:
- the manner of representation of holding of specified securities, and
- the calculation of shareholding
along with the formats for reporting the same in the form of Table I- IV provided therein.
Further, the SBO Rules, 2018 provide for the disclosure of significant beneficial ownership by an individual being the significant beneficial owner as the holder of “not less than ten per cent share capital of the company”. The SBO Rules primarily provide for:
- the identification of SBOs;
- declaration of SBOs in the shares of the company, and
- the register and return of SBOs.
Practical Analysis
The format provided for the disclosure regarding SBOs shall not be construed as an intricate manner of disclosure as it is only divided into four major heads capturing the following requirements:
- details of the significant beneficial owner;
- details of the registered owner;
- particulars of the shares in which significant beneficial interest is held by the beneficial owner; and
- date of creation/acquisition of significant beneficial interest.
However, the matter of concern is that the circular shall come into force with effect from the quarter ending 31 March 2019, whereby the first reporting shall be made within 21 days, i.e., on or before 21 April 2019. It is pertinent to note that the said circular has been brought in line with the SBO Rules, 2018 which are still unclear on various practical aspects of reporting of the SBOs. Furthermore, the MCA is yet to revise the form for declaration of significant beneficial ownership in the shares, i.e., e-Form BEN-1 and provide better clarity on the rules. In light of the same, it might be difficult for the stakeholders to provide the disclosure to the stock exchange considering that the manner of disclosure under the said rules is yet to be revised and clarified.
Further, the disclosure under Table V as provided in the SEBI circular is an addition to the existing format of disclosure of holding of “specified securities” and the shareholding pattern as required under regulation 31 of LODR Regulations. Specified securities under regulation 2 of the LODR Regulations are defined as:
(zl) ‘specified securities’ means ‘equity shares’ and ‘convertible securities’ as defined under clause (zj) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.”
An SBO as defined under the SBO Rules, 2018 is a holder of the “share capital of the company”. Accordingly, such shareholding is construed in a diluted manner as the SBO Rules, 2018 provide that the instruments in the form of global depository receipts, compulsorily convertible preference shares or compulsorily convertible debentures should be included under the total shareholding of the company. Therefore, the disclosure of the details of the SBOs shall be made in accordance with the same.
Conclusion
Owing to the above practical difficulties in the implementation of the reporting with respect to significant beneficial ownership and the ambiguities pertaining to the SBO Rules, it is likely to be quite difficult for the companies to report the same by 21 April 2019. Hence, it is likely that the SBO Rules might very soon undergo various revisions in line with SEBI’s strides pertaining to the disclosure of SBOs. Along with providing the revised format for the disclosure of SBOs, it has also become imperative for the MCA to come with better clarifications on the SBO Rules, 2018 to simplify the perplexities with respect to the same.
– Ambika Mehrotra
