Section 89 of Companies Act : Declaration of Beneficial Interest in Any Share.

“(1) Where the name of a person is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares, such person shall make a declaration within such time and in such form as may be prescribed to the company specifying the name and other particulars of the person who holds the beneficial interest in such shares.

 (2) Every person who holds or acquires a beneficial interest in a share of a company shall make a declaration to the company specifying the nature of his interest, the particulars of the person in whose name the shares stand registered in the books of the company, and such other particulars as may be prescribed.

 (3) Where any change occurs in the beneficial interest in such shares, the person referred to in sub-section (1) and the beneficial owner specified in sub-section (2) shall, within a period of thirty days from the date of such change, make a declaration to the company in such form and containing such particulars as may be prescribed.

(4) The Central Government may make rules to provide for the manner of holding and disclosing beneficial interest and beneficial ownership under this section.

(5) If any person fails to make a declaration as required under sub-section (1), sub-section (2), or sub-section (3), he shall be liable to a penalty of fifty thousand rupees and, in case of continuing failure, a further penalty of two hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees.

(6) Where any declaration under this section is made to a company, the company shall make a note of such declaration in the register concerned and shall file, within thirty days from the date of receipt of the declaration by it, a return in the prescribed form with the Registrar in respect of such declaration with such fees or additional fees as may be prescribed.

(7) If a company, required to file a return under sub-section (6), fails to do so before the expiry of the time specified therein, the company and every officer of the company who is in default shall be liable to a penalty of one thousand rupees for each day during which such failure continues, subject to a maximum of five lakh rupees in the case of a company and two lakh rupees in the case of an officer who is in default.

(8) No right in relation to any share in respect of which a declaration is required to be made under this section but not made by the beneficial owner shall be enforceable by him or by any person claiming through him.

(9) Nothing in this section shall be deemed to prejudice the obligation of a company to pay dividends to its members under this Act, and the said obligation shall, on such payment, stand discharged.

 (10) For the purposes of this section and Section 90, beneficial interest in a share includes, directly or indirectly, through any contract, arrangement, or otherwise, the right or entitlement of a person alone or together with any other person to:

1. exercise or cause to be exercised any or all of the rights attached to such share; or
2. receive or participate in any dividend or other distribution in respect of such share.

(11) The Central Government may, by notification, exempt any class or classes of persons from complying with any of the requirements of this section, except sub-section (10), if it is considered necessary to grant such exemption in the public interest, and any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification.”

Scope

In accordance with Section 89 of the Companies Act of 2013, a person whose name appears in a company’s member registry as the holder of shares but who does not possess the beneficial interest in those shares is required to file a declaration within a prescribed timeframe and format.

Interpretation of Section 89

• When the shar holder is not the beneficial holder, the name of the holder of shares entered in the register of members is not that of the beneficial holder. That such holder of shares shall make a declaration to the company within a reasonable time in the prescribed format for declaring the prescription of the person who possesses the beneficial interest.
• Nature of interest of beneficial holder: Every person who holds the beneficial interest shall make a declaration to the company for declaring his nature of interest in that company’s shares, along with the particulars of the person who holds the shares in that company or any other particular as may be prescribed to be given. 

• Time period for making changes: where there are any such changes to be made in such shares. That the persons in sub-section (1), i.e., the holders of shares, and the beneficial owner in sub-section (2) shall make a declaration to the company consisting of such particulars as may be prescribed to be made. That the declaration shall be made within 30 days from the date of such change. 
• Role of the Central Government: The Central Government shall make such rules for the procedure of holding, disclosing the beneficial interest and beneficial holder.

• Liability of the person: Where such person, under sub-section (1), sub-section (2), or sub-section (3), was required to make such a declaration to the company but failed to do so to the company. That person shall be liable for the penalty of 50 thousand rupees, or if the failure continues, he shall be liable for 2 thousand rupees per day from the date of such failure. That is the maximum penalty, subject to 5 lakh rupees. 
• Role of the company: When a company receives a declaration under this section, it must record the declaration in the relevant register and file a return in the prescribed form with the registrar within thirty days of the date it received the declaration, along with any additional fees that may be required. 
• Liability of the company: A penalty of one thousand rupees for each day that a company that is required by sub-section (6) to file a return fails to do so before the expiration of the time specified therein will be imposed on the company and each of its officers who are in default. This penalty can reach a maximum of five lakh rupees for a company and two lakh rupees for an officer who is in default. 
• No declaration, no right—that if the beneficial owner fails to file a declaration of beneficial interests with the company in accordance with sub-section (2) or sub-section (3) of Section 89 of the Act, he will not be able to enforce his rights in shares in which he owns beneficial interests. The beneficial owner or any person claiming on his behalf cannot enforce such an interest. 
• Meaning of Beneficial Interest: For the purposes of this section and Section 90, a person’s right or entitlement to exercise or cause to be exercised any or all of the rights attached to a share, or to receive or participate in any dividend or other distribution in respect of such a share, is considered a beneficial interest in a share, whether directly or indirectly, through any contract, arrangement, or other means.

Exemption to Section 89 of Companies Act

• Non-effective part of the section: It should be noted that the company is exempt from passing on any rights share, bonus, divided, or other benefits derived from these shares if the beneficial interest is disclosed in accordance with this section. to the beneficial owner, despite the fact that this declaration serves as constructive notice to the business. The division of valuable interest in the offers doesn’t remove the privileges of the enlisted investor either. Sub-segment (9) of Area 89 says that nothing in this part will be considered to bias the commitment of an organization to deliver profit to its individuals under this demonstration, and the said commitment will, on such an installment, stand released. Exposures made under this part are not headings to the organization. The privileges, shares, reward, and separation ought to be proposed to the enrolled party. Notwithstanding, the enrolled part might guide the organization to deliver the profit on his portions for the gainful proprietor and enounce the freedoms partakes for the valuable proprietor. On account of extra offers, the equivalent will be designated for the sake of the enlisted part, and the equivalent would need to be moved to the advantageous proprietor, provided that this is true. In such a manner, the details of the ‘instrument making the gainful interest’ will be investigated. 
• Exemption by the central government: If it is necessary in the interest of the public to exempt any class or classes of persons to save the public interest, then the central government shall grant such exemption through its notification, which grant can either be unconditional or subject to such conditions as prescribed by that notification of the central government.

FAQ

Q. What is a beneficial owner and registered owner?

A record holder, also known as a registered owner, holds shares directly from the business. Shares are indirectly held by a beneficial owner via a bank or broker-dealer.

Q. What is the difference between Section 89 and 90 of Companies Act, 2013?

beneficial interest in one (1) share, and if he is not the registered owner, a statement under Section 89 must be made. However, a 10% threshold is provided by Section 90 r/w SBO Rules.

Q. What is Section 89 of companies?

The concept of a benefit interest in a share is covered under Section 89 of the Companies Act of 2013, which requires both the legal owner and anyone acquiring or possessing a beneficial interest in a share to declare such an interest to the company.

Q. Who is beneficial owner as per RBI guidelines?

If the client is a partnership firm, the beneficial owner is the natural person or people who, either individually, jointly, or through one or more legal entities, own or are entitled to more than 10% of the partnership’s capital or earnings, or who otherwise exerts control.

Q. Section 89 of the Companies Act, 2013 applicable to on what types of company?

This section is applicable to private companies as well as public companies