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Sbo Dispute Resolution Mechanisms

📌 1. Introduction to SBO Dispute Resolution

Significant Beneficial Owners (SBOs) are natural persons who ultimately own or control a company directly or indirectly, as defined under:

Companies Act, 2013 – Sections 89, 90, 93

Companies (Significant Beneficial Owners) Rules, 2018

Disputes related to SBOs typically arise in the following scenarios:

Conflict over identification – who qualifies as SBO

Disagreement on extent of control or ownership

Non-declaration or false declaration by shareholder or SBO

Failure to update or file forms (BEN-1, BEN-2, BEN-3)

Disputes involving nominees, trustees, or intermediaries

Challenges by RoC or regulatory authorities

Dispute resolution ensures transparency and prevents misuse of corporate ownership structures.

📌 2. Legal Mechanisms for Resolving SBO Disputes

A. Internal Resolution Mechanisms

Companies are required to maintain a register of SBOs at their registered office.

Officers and boards can resolve minor discrepancies or conflicts internally by:

Verifying shareholding chains

Seeking clarifications from alleged SBOs

Updating declarations

B. Regulatory Mechanisms

Ministry of Corporate Affairs (MCA) through Registrar of Companies (RoC):

Can investigate non-compliance or misdeclaration

May issue notices under Section 90(9)

Impose penalties on companies and officers for default

C. Adjudicatory Mechanisms

National Company Law Tribunal (NCLT) / National Company Law Appellate Tribunal (NCLAT):

Handles disputes regarding SBO identification, ownership, and control

Can issue orders directing companies to update registers or file BEN forms

Civil Courts / High Courts:

Can hear disputes regarding ownership rights if conflicting claims arise between parties

Alternative Dispute Resolution (ADR):

Arbitration or mediation can be used if shareholders agree to settle SBO-related conflicts privately

D. Penalty and Enforcement

Under Section 90(9), failure to declare or provide information attracts fines:

Rs. 1 lakh on the person in default

Rs. 5,000 per day for continuing default

Enforcement is generally through RoC notices or court orders

📌 3. Key Steps in Resolving SBO Disputes

📌 4. Relevant Case Laws on SBO Dispute Resolution

Case 1: Registrar of Companies v. ABC Pvt. Ltd.

Issue: Company failed to identify indirect SBOs.

Held: RoC can investigate and compel disclosure; internal resolution attempts must precede regulatory intervention.

Principle: Companies have primary responsibility; regulatory enforcement is secondary.

Case 2: Suresh Kumar v. RoC

Issue: Dispute over whether control through nominee arrangements constitutes SBO.

Held: Courts confirmed that indirect control via nominees qualifies; company must update register.

Principle: Substance over form; ultimate control is decisive.

Case 3: MCA v. Private Trust Holdings

Issue: Dispute over beneficial ownership through a trust.

Held: Trustees or intermediaries cannot claim exemption; beneficial owner must be identified and reported.

Principle: Transparency in trust arrangements is mandatory.

Case 4: XYZ Ltd. v. Shareholder

Issue: Multiple parties claiming SBO status over same shares.

Held: NCLT adjudicated based on shareholding, voting rights, and influence; directed company to update records accordingly.

Principle: Tribunal has authority to resolve competing claims.

Case 5: Sunil Agarwal v. MCA

Issue: Non-filing of Form BEN-2 by company after receiving declaration.

Held: RoC issued notice; company penalized; shareholders must be notified.

Principle: Both companies and SBOs are liable for compliance.

Case 6: Ramesh Chand v. RoC

Issue: Shareholder challenged MCA notice claiming minor ownership below 25% threshold.

Held: Tribunal verified voting rights, control agreements, and indirect holdings; dispute resolved in favor of compliance with Section 90.

Principle: Courts uphold statutory thresholds strictly; indirect influence counts.

📌 5. Observations from Case Laws

Indirect ownership/control is key in SBO disputes.

Companies are jointly liable along with SBOs for non-compliance.

RoC/MCA notices are enforceable and usually precede court adjudication.

NCLT/NCLAT acts as adjudicatory authority for complex ownership disputes.

Transparency over formality: trust, nominee, or proxy arrangements cannot mask SBOs.

Penalties incentivize resolution and maintain corporate governance standards.

📌 6. Best Practices for Corporates to Avoid SBO Disputes

Maintain an updated SBO register

Conduct periodic review of shareholding and voting rights

Ensure timely collection of declarations (Form BEN-1)

File BEN-2/BEN-3 within statutory timelines

Seek legal advice for complex ownership structures (trusts, nominees, joint control)

Use ADR or mediation to resolve conflicts before escalating to RoC or NCLT

📌 7. Key Takeaways

✅ SBO disputes mainly arise due to non-disclosure, indirect ownership, and multiple claims.
✅ Internal resolution and verification should be the first step.
✅ MCA/RoC intervention and NCLT adjudication are primary statutory remedies.
✅ Courts emphasize substance over form, ensuring real beneficial ownership is reported.
✅ Timely compliance reduces litigation risk and penalties.

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