[Opinion] Consequences of Delay in Filing a Return of Declaration of Beneficial Interest in Form MGT-6

Prof R Balakrishnan – [2024] 161 taxmann.com 565 (Article)

1. Background of the case

The Registrar of Companies of Madhya Pradesh, Gwalior had passed an adjudication order on 27th March 2024, imposing penalties on M/s Realworks Infrabuild Private Limited and its directors for violations of section 89(1A) of the Companies Act 2013. The Registrar of Companies on his scrutiny, found out that the company was in non-compliance with the provisions of section 89 of the Companies Act, 2013. Section 89 of the Companies Act 2013, mandates that the declaration of beneficial interests in company shares as and when received by the company is required to be filed timely through the e-form MGT-6. Though the company had received the declarations in form MGT4 and MGT 5 on 20th April 2014, the company had filed the MGT-6 form only on 16th March 2024 – after a delayed period of 3587 days. When the Registrar of Companies took up the matter with the company by issuing a show cause notice and an opportunity to respond, the company and its officers did not furnish a satisfactory explanation. However, at the time of the personal hearing, the directors of the company submitted their defence. Consequently, the Adjudicating Officer proceeded with the adjudication proceeding and imposed penalties upon the company and its directors to the tune of Rs. 13 lakh as per the provisions of the Companies Act, 2013. Let us go through this case in order to understand the applicable provisions, procedure involved and the manner in which the Adjudicating Officer dealt with this case and penalized the company and its directors.

2. Relevant provisions of the Companies Act 2013 relating to this case

Section 89 of the Companies Act 2013 is the relevant provision which spells out the requirement of declaration in respect of a beneficial interest in any share read with Rule 9 of Companies (Management and Administration) Rule, 2014 on this matter. The relevant provisions of the Act and Rules are given below.

Companies Act 2013 Chapter VIIX – Management and Administration Section 89 – Declaration in respect of a beneficial interest in any share.
Section	Provisions
89 (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.
89 (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, 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.
89 (3)	Where any change occurs in the beneficial interest in such shares, the person referred to in subsection (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.
89 (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 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.
Companies (Management and Administration) Rules 2014 Rule 9. Declaration in respect of beneficial interest in any shares
Rule	Provisions
9 (1)	A person whose name 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 (hereinafter referred to as 9 “the registered owner”), shall file with the company, a declaration to that effect in form no. MGT-4 within a period of thirty days from the date on which his name is entered in the register of members of such company:
Proviso	Provided that where any change occurs in the beneficial interest in such shares, the registered owner shall, within a period of thirty days from the date of such change, make a declaration of such change to the company in form no. MGT-4.
9 (2)	Every person holding and exempted from furnishing a declaration or acquiring a beneficial interest in shares of a company not registered in his name (hereinafter referred to as “the beneficial owner”) shall file with the company, a declaration disclosing such interest in form no. MGT-5 within thirty days after acquiring such beneficial interest in the shares of the company:
Proviso	Provided that where any change occurs in the beneficial interest in such shares, the beneficial owner shall, within a period of thirty days from the date of such change, make a declaration of such change to the company in form no. MGT-5.
9 (3)	Where any declaration under section 89 is received by the company, the company shall make a note of such declaration in the register of members and shall file, within a period of thirty days from the date of receipt of declaration by it, a return in form no.MGT-6 with the Registrar in respect of such declaration with fee.
Proviso	Provided that nothing contained in this rule shall apply about a trust which is created, to set up a Mutual Fund or Venture Capital Fund or such other fund as may be approved by the Securities and Exchange Board of India.
Companies Act 2013 Chapter VIIX – Management and Administration Section 89 – Declaration in respect of a beneficial interest in any share.
Penal provision for any default/violation
89 (5)	If any person fails, to make a declaration as required under sub-section (1) or sub-section (2) or sub-section (3), he shall be liable to a penalty of fifty thousand rupees and in case of continued failure, with 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.
89 (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 default continues subject to a maximum of five lakh rupees in the case of a company and two lakh rupees in case of an officer who is in default.