For the past few months, a slew of filings made mandatory by the Government of India have kept companies and corporate professionals busy. These requirements, much to the consternation of companies and their officials and advisors, have required multiple filings to be made, to consolidate information relating to the past several years. Some of these are:

Entity master filing and single master form: The Reserve Bank of India (RBI) has proposed the integration of the reporting structure of various types of foreign investments in India (Form FC-GPR, Form FC-TRS, Form LLP-I, Form LLP-II, Form ESOP, etc.) into a single master form (SMF). The SMF will have to be filed online. This is, of course a welcome move, and the intent is to simplify corporate compliances for entities receiving foreign investment.

However, prior to the implementation of the SMF, all Indian entities are required to input the data on the total foreign investment received in a specified format. This filing is additional to the ordinary course filings companies with foreign investment have been doing over the past several years, and consolidates all the information so filed till date. The intent of creating consolidated records of foreign investment received by each entity would be beneficial in the long term, but the process of making this compliance has been stressful and cumbersome, especially for entities which have been in existence for a considerable period of time and due to certain logistical issues while filing in the format prescribed. This is more so since the stated consequence of failure to make such a filing, is that the entity would no longer be eligible to receive foreign investment and such non-filing would be considered a violation of the provisions of the Foreign Exchange Management Act, 1999, and the rules framed thereunder. The deadline for making such a filing was originally July 12, 2018, which was extended by a few days.

Significant beneficial ownership filings: The provisions relating to significant beneficial ownership contained in Section 90 of the Companies Act, 2013, (read with Section 89 (10) of the Act) and the corresponding rules—the Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2018—were notified by the Ministry of Corporate Affairs on June 13, 2018. The rules were published in the official gazette on June 14, 2018. Pursuant to these provisions, in a nutshell, every individual, who acting alone or together, or through one or more persons or trust, holds beneficial interests, of not less than 10%, in shares of an Indian company or the right to exercise or exercising significant influence or control, is required to make a declaration with the company specifying the nature of his/her interest and other particulars. This filing seeks to go through several layers of ownership, and compliance with these rules has been particularly challenging for companies which are, for instance, owned by entities outside India or which are public companies with a rather larger shareholder base.

Director KYC requirement: A requirement being implemented now, is the filing of form DIR-3 KYC by all individuals holding Director Identification Numbers (DINs). The KYC requirements/filings, unusually, include a one-time password being sent to the mobile number and email ID of the individual making the filing. Individuals who do not make the filings will find their DINs de-activated till the filing is made. In light of certain other changes made by the Government of India with regard to the allotment of DINs (DINs can no longer be applied for unless the individual is actually likely to be appointed director of a company, for instance) the intent seems to be to ensure DINs are allotted only to individuals with bona fide purposes and intentions. In addition, earlier while a digital signature certificate (DSC) was not a pre-requisite for directors to procure a DIN, with the present DIR-3 KYC requirement, all directors are required to procure a DSC.

From the above, among other changes in laws in India, the intent appears to be to provide enough information for the government to know if companies are defunct, or structured to confuse regulators. The implementation of these moves is time-consuming and could even be seen as haphazard given the lack of clarity on several aspects. However, it is worth considering whether the government will ensure the information is protected and kept confidential, such as the personal information of individuals which would be disclosed in these filings. One may even argue that the information being sought can often be too invasive and perhaps, not relevant to the regulators in India.

However, it remains to be seen how all these processes will help address the issues they seem to be aimed at, such as lack of transparency in the structures of some companies and the issue of large numbers of defunct companies.

(Views expressed are personal. )

Image : Archana Tewary
Image : Pooranimaa Hariharan

The authors are Archana Tewary (L), Partner and Pooranimaa Hariharan (R), Senior Associate, J. Sagar Associates. Views are personal.

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