What Is a Declaration of Beneficial Interest?
A declaration of beneficial interest under section 89 is what the Companies Act asks for when the name on the share is not the person who really owns it. Two people declare, not one, and the sanction for silence is unusual: the real owner keeps the shares but loses the ability to enforce any right attached to them.
Definition
A declaration of beneficial interest
is what section 89 of the Companies Act, 2013 requires where the person entered in a company's register of members as the holder of shares does not hold the beneficial interest in them. The registered holder declares who does, and the beneficial owner declares the nature of that interest. Source: Companies Act, 2013, sections 89(1) and 89(2).
Who makes a declaration of beneficial interest, and what they say
Section 89 sets up three declarations, all made to the company rather than to the Registrar:
| Sub-section | Who declares | What they say |
|---|---|---|
| 89(1) | The registered holder who does not hold the beneficial interest | The name and other particulars of the person who does hold it, within the prescribed time and form |
| 89(2) | Every person who holds or acquires a beneficial interest | The nature of his interest, the particulars of the person in whose name the shares stand registered in the company's books, and other prescribed particulars |
| 89(3) | Both of the above | Any change in the beneficial interest, within thirty days from the date of the change |
There is no threshold anywhere in section 89. One share held by a nominee triggers it. That is the cleanest way to keep the section separate from section 90, which builds a register of significant beneficial owners around a percentage test.
Section 89(4) leaves the mechanics to delegated legislation: the Central Government may make rules providing for the manner of holding and disclosing beneficial interest and beneficial ownership under the section.
What the Act means by beneficial interest
Section 89(10), inserted by Act 1 of 2018, section 21, with effect from 13 June 2018, supplies a definition that the Act had previously left to general law. It is drafted to catch arrangements rather than just titles.
For the purposes of section 89 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:
- (i) exercise or cause to be exercised any or all of the rights attached to such share; or
- (ii) receive or participate in any dividend or other distribution in respect of such share
Two features do the work. The definition is inclusive rather than exhaustive, and it splits control from economics: either the voting limb or the dividend limb is enough on its own, so an arrangement that hands over the economics while leaving the votes behind still creates a beneficial interest.
Section 89(10) states on its face that it applies for the purposes of section 89 and section 90, so the same definition carries into the significant beneficial owner regime. Section 89(11), inserted by Act 29 of 2020, section 18, with effect from 22 January 2021, lets the Central Government exempt any class of persons from any of the requirements of the section, except sub-section (10), in the public interest, unconditionally or on conditions. The exemption power reaches the duties and stops at the definition.
₹5,00,000
The maximum penalty on a person who fails to declare a beneficial interest, built from fifty thousand rupees plus two hundred rupees a day
Source: Companies Act, 2013, section 89(5), as substituted by Act 29 of 2020, s. 18, w.e.f. 21 December 2020
What the company does with the declaration
Section 89(6) puts two duties on the company once a declaration reaches it. The company shall make a note of the declaration in the register concerned, and shall file a return in the prescribed form with the Registrar within thirty days of receiving it, with the prescribed fees or additional fees.
The words "within the time specified under section 403" were omitted from this sub-section by Act 1 of 2018, section 21, with effect from 7 May 2018, so the thirty day period in the sub-section itself is now the operative one.
MGT-6 vs BEN-2 covers the forms this runs through, including the MGT-4 and MGT-5 declarations and the MGT-6 return, and how the section 89 chain differs from the section 90 one.
The two penalties, and the sanction that is not a penalty
Section 89 splits liability between the two sides, and both sub-sections were substituted by Act 29 of 2020, section 18, with effect from 21 December 2020.
| Who defaults | What section 89 provides |
|---|---|
| A person who fails to declare under 89(1), (2) or (3) | Penalty of fifty thousand rupees, and for continuing failure a further two hundred rupees for each day after the first, subject to a maximum of five lakh rupees. Section 89(5) |
| A company that fails to file the 89(6) return in time | The company and every officer in default liable to one thousand rupees for each day the failure continues, subject to a maximum of five lakh rupees for a company and two lakh rupees for an officer in default. Section 89(7) |
Section 89(8) is separate from both, and is the provision with real commercial bite. No right in relation to any share in respect of which a declaration is required under the section but not made by the beneficial owner shall be enforceable by him or by any person claiming through him.
Read the limits of that carefully. It is triggered by the beneficial owner's failure, not the registered holder's. It suspends enforcement rather than ownership. And it travels: a person claiming through the silent beneficial owner is barred as well, so the defect is not cured by a transfer.
Section 89(9) then protects the company from being caught in the middle. Nothing in the section shall be deemed to prejudice the obligation of a company to pay dividend to its members, and that obligation, on such payment, stands discharged. A company that pays the registered member is done, whatever the beneficial owner's position.
Section 89 and section 90 are not the same test
These two are routinely confused because both are about who really owns shares. They differ in almost every operative respect.
| What to check | Section 89 | Section 90 |
|---|---|---|
| Trigger | Registered holder is not the beneficial owner, no threshold | Section 90(1) states not less than twenty five per cent, or such other percentage as may be prescribed. The prescribed figure binds, and it is ten per cent under rule 2(1)(h) of the Companies (Significant Beneficial Owners) Rules, 2018, as substituted by G.S.R. 100(E) dated 8 February 2019, on the shares, voting rights and distributable dividend limbs; a fourth limb is significant influence or control with no percentage |
| Who the subject can be | Any person or entity | An individual only |
| What the company keeps | A note in the register concerned, section 89(6) | A separate register of significant beneficial owners, section 90 |
| Shared definition | Section 89(10) defines beneficial interest | Section 90 uses the same section 89(10) definition |
Where this sits in the disclosure picture
For an investor reading a listed company, section 89 is the layer under the register of members. Ownership that sits behind a nominee is exactly what a shareholding pattern will not show you, and this is the mechanism the Act uses to surface it.
- What is the register of members covers the register section 89(6) notes are made in, and its inspection right.
- What is a significant beneficial owner covers the section 90 register and the prescribed percentage that applies to it.
- MGT-6 vs BEN-2 compares the two returns these regimes produce.
- How to read a shareholding pattern covers the quarterly exchange disclosure that reports registered holdings rather than beneficial ones.
Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.
Frequently asked questions
What is a declaration of beneficial interest under section 89?
Two declarations to the company. The person whose name is entered in the register of members but who does not hold the beneficial interest declares who does. Every person who holds or acquires a beneficial interest declares the nature of that interest and the name the shares are registered in. Any change is declared within thirty days. Source: Companies Act, 2013, sections 89(1), 89(2) and 89(3).
What is beneficial interest in a share?
Section 89(10) defines it, for that section and section 90, as including directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to exercise or cause to be exercised any or all of the rights attached to the share, or to receive or participate in any dividend or other distribution in respect of it. Source: Companies Act, 2013, section 89(10).
What happens if a beneficial owner does not declare?
Section 89(8) provides that no right in relation to a share for which a declaration is required but has not been made by the beneficial owner shall be enforceable by him, or by any person claiming through him. A separate penalty of fifty thousand rupees applies under section 89(5), with two hundred rupees a day for continuing failure. Source: Companies Act, 2013, sections 89(8) and 89(5).
Is there a shareholding threshold for a section 89 declaration?
No. Section 89 applies whenever a registered holder is not the beneficial owner, with no minimum size. A threshold belongs to the separate register of significant beneficial owners under section 90, which states twenty five per cent or such other percentage as may be prescribed. The prescribed figure is the one that binds, and it is ten per cent under rule 2(1)(h) of the Companies (Significant Beneficial Owners) Rules, 2018. Source: Companies Act, 2013, sections 89 and 90(1), and MCA, Companies (Significant Beneficial Owners) Rules, 2018, rule 2(1)(h) as substituted by G.S.R. 100(E) dated 8 February 2019.
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