—Guide
SBO Non-Compliance: Penalties, BEN-4 Notices and NCLT Restrictions
What companies and SBOs must each do, the penalties for failing, and how a BEN-4 notice and the NCLT can restrict shares when a shareholder won't cooperate.
The significant beneficial owner rules put obligations on both the company and the individuals behind it, and the penalties for ignoring them are among the heaviest for any routine company compliance. This guide explains what each side has to do, what happens when they don't, and how a company can use a BEN-4 notice and the NCLT when a shareholder won't cooperate.
Who Has to Do What
The significant beneficial owner
An individual who is an SBO must declare their interest to the company in Form BEN-1 within 30 days of acquiring it, and within 30 days of any change in it.
The company
- Take the necessary steps to find out whether any individual is an SBO, including sending BEN-4 notices to non-individual members holding 10% or more.
- File Form BEN-2 with the ROC within 30 days of receiving each BEN-1.
- Maintain a register of significant beneficial owners in Form BEN-3, open to inspection by members.
Penalties
- An individual who fails to make a BEN-1 declaration faces a penalty, with a further amount for each day the failure continues, up to a cap.
- A company that fails to maintain the register, file BEN-2, or take the steps to identify its SBOs faces a penalty, with a daily amount on top, up to a higher cap. Every officer in default faces a penalty too.
- A person who wilfully furnishes false or incorrect information, or suppresses material information, can be liable for fraud under Section 447 of the Act, which carries far more serious consequences.
Since the Companies (Amendment) Act, 2020, the penalties for most failures are civil, imposed by the ROC through adjudication. But their daily build-up means that leaving a default unresolved gets expensive quickly.
When a Shareholder Won't Cooperate
Sometimes a company can't get the information it needs because a shareholder won't provide it. The Act gives the company a way forward.
- The company sends the member a notice in Form BEN-4, asking for information about any individual who may be an SBO through it.
- The member has 30 days to respond.
- If the member fails to respond, or the company is not satisfied with the reply, the company can apply to the National Company Law Tribunal within 15 days of the end of that period.
- The NCLT can order restrictions on the shares, such as restrictions on transferring them, receiving dividends or other distributions, and voting.
An individual affected by such an order can apply to the NCLT within a year to have the restrictions relaxed or lifted.
Common Causes of Non-compliance
- Assuming the rules don't apply because all shareholders appear to be individuals or Indian companies.
- Not sending BEN-4 notices to corporate shareholders.
- Stopping at the first layer, and not tracing the chain to the ultimate holding company.
- Not reporting changes when an investor comes in or an upstream structure changes.
- Collecting a BEN-1 but forgetting to file BEN-2 within 30 days.
Fixing Past Non-compliance
A company that realises it hasn't complied should act promptly: trace its ownership, send BEN-4 notices, collect BEN-1 declarations, file BEN-2, and update the register. Where penalties have been triggered, responding to any ROC notice quickly, and claiming the lower penalties that apply to small companies and startups where eligible, can limit the cost.
Getting Help
Think Filing handles SBO compliance end to end, sends and follows up BEN-4 notices, prepares NCLT applications where a shareholder won't cooperate, and regularises past defaults.