INSUBCONTINENT EXCLUSIVE:
New Delhi: As part of its drive to lift the corporate veil and target benami entities, the government has decided to dematerialise shares of
unlisted corporates, starting with 80,000-90,000 public companies
Separately, holdings above 10 per cent in a company are also being classified as “significant beneficial ownership” with mandatory
disclosures.
The ministry of corporate affairs (MCA) is expected to announce the plan for dematerialisation of shares over the next few
weeks as it wants to ensure that the real ownership is revealed through the exercise, besides making it easier to track the shareholders,
At the end of March 2017, there were close to 11.7 lakh active companies in India, but the requirement for dematerialisation of shares is
currently in place only for around 8,000 listed entities
Recognising that immediate dematerialisation of shares for all companies is not possible, the initial focus will be on public companies —
a move that is expected to impact at least 5.5-6 crore shareholders of such unlisted companies.
Parallelly, MCA is readying rules to provide
for significant beneficial ownership aimed at tracking the real beneficiaries of shares as often benami holdings are found in shell
The new section that was inserted in the Companies Act is also part of the global fight against money laundering and came at the behest of
Parisbased Financial Action Task Force with countries such as the UK already incorporating the provisions.
The law provides for maintaining
of a register of “beneficial owners”
While the Companies Act had said that the threshold for classification will be at least 25 per cent or another level that is prescribed, MCA
is expected to set the limit at 10 per cent, increasing the ambit of the provisions to cover a larger base of shareholders, who may be
warehousing the shares for someone else.
“There are cases where the real owner is someone else as the shares have been paid for through
funding to another person
Similarly, I may be holding shares but I can have a back-to-back arrangement on voting
With the new rules, all these issues will be sorted out,” said a source.
The move will also have significant implications for foreign
investors, especially in tightly-regulated sectors where 100 per cent FDI is still not per mitted.
The law provides for mandatory disclosure
within a stipulated period and once the rules are notified there will be a rush of filings as shares in most companies are not widely held
A failure to disclose beneficial ownership can result in a fine of up to Rs 50,000 with a daily penalty of Rs 1,000, if the failure to
comply with the rules continues
The Companies Act also allows the Centre to investigate cases of beneficial ownership.
