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Ultimate parent’s professional CEO a Significant Beneficial Owner: Do companies have to re-evaluate their corporate approval process and reporting line structures?


The genesis of the concept of ‘significant beneficial ownership’ under Indian law can be traced to the Financial Action Task Force (“FATF”) recommendations on issues pertaining to ‘transparency and beneficial ownership of legal persons and arrangements’. Set up in 1989, the FATF is a global inter-governmental body, now serving as a watchdog for global money laundering and terrorist financing.

The recommendations issued by the FATF, adopted in February 2012 and updated till November 2023 (the “FATF Recommendations”), specifically mention under Recommendation 24 that “…. Countries should ensure that there is adequate, accurate and up-to-date information on the beneficial ownership and control of legal persons that can be obtained or accessed rapidly and efficiently by competent authorities, through either a register of beneficial ownership or an alternative mechanism”. India became a party to the FATF on June 25, 2010. Thereafter, in pursuance of recommendations 24 and 25 of the FATF Recommendations and those propounded by The Companies Law Committee in its report dated February 2016, to identify and prevent “Misuse of corporate vehicles for the purpose of evading tax or laundering money for corrupt or illegal purposes, including for terrorist activities has been a concern worldwide”, the Ministry of Corporate Affairs (“MCA”) introduced the concept of ‘significant beneficial ownership’ under the Companies Act, 2013 (“Act”).

In this post, we seek to analyse the legal framework governing ‘significant beneficial owners’ (SBOs) of Indian companies and critique the recent orders passed by ROCs, while also highlighting potential significant ramifications these may have on Indian businesses and subsidiaries of MNCs operating here.

Legal framework governing ‘significant beneficial ownership’

The law governing ‘significant beneficial ownership’ was codified under Section 90 of the Act, read with the Companies (Significant Beneficial Owners) Rules, 2018 (“SBO Rules”).

Section 90 of the Act, read with SBO Rules, prescribes twin tests to determine the ‘significant beneficial owner’ of a reporting Indian company. The first is the objective test, which determines an individual’s status basis their percentage shareholding at the reporting Indian company level and majority holding through the ownership chain. The second is the subjective test i.e., determining whether the person has the right to exercise or actually exercising ‘significant influence’ or ‘control’ in any manner, other than merely through direct holding.

  • Objective test: The MCA has framed SBO Rules in pursuance of Section 90, read with Section 469(1) of the Act, and hence is a delegated legislation. Section 90(1) of the Act prescribes the ‘significant beneficial ownership’ threshold at 25%, while Rule 2(1)(h) of the SBO Rules reduces it to 10%. This leads to a potential conflict related to the threshold at which ‘significant beneficial ownership’ would be triggered under the Act and the SBO Rules. Further, Section 90(1) stipulates the threshold as “not less than twenty-five per cent or such other percentage as may be prescribed”,implying that the MCA would have the power to prescribe “such other percentage”, but this threshold should have been above 25%. “It is well settled that rules framed under the provisions of a statute form part of the statute. In other words, rules have statutory force. But before a rule can have the effect of a statutory provision, two conditions must be fulfilled, namely (1) it must conform to the provisions of the statute under which it is framed; and (2) it must also come within the scope and purview of the rule making power of the authority framing the rule. If either of these two conditions is not fulfilled, the rule so framed would be void”.[1] Hence, it is likely that the legal validity of this conflict between the delegated legislation, i.e., the SBO Rules and the parent statute, which is the Act, would be challenged before Indian courts for being ultra vires.
  • Subjective test: Whether or not an individual can exercise ‘significant influence’ or ‘control’ is largely a factual determination which will be done on a case to case basis. While there is no bright line test for this determination, it is pertinent to note that ‘control’ has been defined under Section 2(27) of the Act to “include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner”. Further ‘significant influence’ has been defined under Rule 2(1)(i) of the SBO Rules as the “power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies”. Given the inherent ambiguity in the definition of participation and the merely inclusive nature of the definition of ‘control’, a lot of leeway has been afforded to the regulator to determine who may qualify as a ‘significant beneficial owner’.

It is pertinent to note that the legal framework governing ‘significant beneficial owners’ creates an inherently ambiguous threshold from a regulation standpoint[2], which along with the adverse consequences of an ‘incorrect declaration’ causes the ‘fear of the unknown’ and thereby also poses a threat to ‘ease of doing business’.

Critiquing the recent regulatory approach of identifying CEOs as SBOs

The Registrar of Companies (“ROCs”) is a regulatory body that has been set up pursuant to Section 396 of the Act, which is “vested with the primary duty of registering companies and … ensuring that such companies … comply with statutory requirements under the Act[3]. It is pertinent to note here that the powers and duties of the ROC are limited to enforcing compliance with the statutory requirements under the Act and not expanding the provisions of the Act and the rules framed thereunder. Recently, however, the ROC’s interpretation of the provisions of the Act and the rules has led to some confusion over the meaning of significant beneficial ownership. If the ROC’s interpretation is to be applied, then it may significantly alter our understanding of SBO. This may necessitate a relook at all existing filings made by all reporting Indian companies.

The ROC of Delhi and Haryana recently passed an Adjudication Order in LinkedIn Technology Information Private Limited (“LinkedIn India”), dated May 22, 2024. The adjudication proceedings arose from an alleged incorrect filing made by LinkedIn India, which the ROC scrutinised. The ROC thereafter issued a show cause notice to LinkedIn India for assessing compliance with Sections 89 and 90 of the Act. With regard to Section 90, the analysis of the ROC is summarised as under:

  • First, the ROC held that since LinkedIn Corporation does not appear to be a holding company of LinkedIn India per the structure charts submitted, the only way for LinkedIn Corporation to have been its holding company was if it had the ability to control the board of directors of LinkedIn India. Further, to show that the board of directors at LinkedIn Corporation came under the control of its CEO, the ROC argued that given that two of the common directors of LinkedIn India and LinkedIn Corporation also serve as officers at LinkedIn Corporation, they would logically come under the control of the senior most officer at LinkedIn Corporation, i.e., the CEO. Furthermore, the ROC also held that post LinkedIn Corporation’s acquisition by Microsoft Corporation, the CEO of LinkedIn Corporation would also be reporting to and be subject to the control of the CEO of Microsoft Corporation.
  • Second,the ROC also held that a review of the bylaws of Microsoft Corporation suggests that its CEO would have general supervision over the company and the authority to prescribe duties to other officers. Given that per ROC findings, majority of directors of LinkedIn India are employees of either LinkedIn Corporation or Microsoft Corporation, directly or indirectly, their reporting channel would end up with the CEO (of Microsoft Corporation or LinkedIn Corporation). The ROC further observed that since LinkedIn India’s directors had not taken any remuneration and represent the interests of LinkedIn Corporation and/ or Microsoft Corporation, they should be considered as nominees of the latter.
  • Third, the ROC also held that there was plausible financial control that Microsoft Corporation could exercise on LinkedIn India, thereby allowing Microsoft Corporation CEO to exert financial control over LinkedIn India.

The ROC ultimately held Mr. Satya Nadella (CEO of Microsoft Corporation) and Mr. Ryan Roslansky (CEO of LinkedIn Corporation) as ‘significant beneficial owners’ and placed a penalty on them for inter alia violating Section 90(1) of the Act. However, we believe that the ROC order expands the operation of the rule for the following reasons:

  • The ‘control’ that a parent entity can exert on its Indian subsidiary cannot be conflated with the ‘control’ that a CEO of the parent entity can have on the subsidiary entity. Especially a professional CEO, who is an employee of the parent company and does not hold a significant shareholding stake at any level of the group.
  • It is pertinent to note that regardless of the composition of the board of directors of an Indian reporting company, by virtue of being on the board, the directors have certain mandatory statutory duties (under Section 166 of the Act), which will supersede any employment relationship that these individuals may have with the parent or group companies.
  • The directors of a company are bound by fiduciary duties that have been codified under the Act. Accordingly, they are required to “act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment”.[4] Further, a board member “shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment”.[5] Hence, regardless of who the directors may/ may not be reporting to as part of their roles outside of their directorship with the reporting Indian company, when they perform any functions or duties as directors of the reporting Indian company, they will mandatorily be required to exercise independent judgement and act in the best interest of the reporting Indian company and its stakeholders (company, shareholders, employees, community and environment). Further, any item that requires the board’s mandatory approval and various other matters as well, are necessarily/ voluntarily taken through the board approval process, and are independently assessed and approved/ rejected. Disregarding the board approval process at the reporting Indian company level and holding that all decisions are being taken only at the ultimate parent company level or by the CEO of the ultimate parent may not be factual or this may not even be practical (especially for large groups, with hundreds of companies across the globe).
  • Further, it is pertinent to note that directors of a company cannot partake in decision making, where they may have a conflict of interest[6] or to use their position as a director of the company for achieving or attempting to achieve “any undue gain or advantage either to himself or to his relatives, partners, or associates[7]. Consequently, there are checks and balances to prevent directors from misusing their role as a director or from acting under any undue influence of group CEOs.
  • Lastly, it is crucial to note that the CEOs of Microsoft and LinkedIn Corporation are both merely ‘employees’ and not ‘owners’ of these companies (both listed)[8]. Like any other employee, they can be terminated and only serve at the pleasure of their respective board of directors and work under their overall supervision, superintendence and control. ‘Ownership’ is crucial to determining and identifying a ‘significant beneficial owner’, and the CEOs of the ultimate global parent companies, like in the instant case, are merely employees and not owners. Further, given that these individuals are themselves subject to the control and superintendence of their boards, they cannot be classified as the ‘ultimate’ individuals exercising ‘control’ or ‘significant influence’ over their Indian subsidiaries.

Ramifications of widening the net of SBOs to Group CEOs

While the regulator has been afforded wide discretion under the subjective test to identify ‘significant beneficial owners’, the aforementioned use by the ROC seems to run afoul of its own powers, legislative intent and the intent of the FATF Recommendations. This is because by virtue of the ROC’s expansive regulatory position, it appears that the regulatory intent is to cover global CEOs of all professionally managed group companies (i.e. companies that are not promoter/ founder run) as ‘significant beneficial owners’ of their Indian subsidiary companies. Interestingly, such an expansive reading would not align with the (UK) Companies Act, 2006, and the (USA) Corporate Transparency Act and could thereby also pose a threat to ‘ease of doing business’ in India. This could potentially hamper expansion plans of foreign companies and multi-national corporations. They may refrain from opening offices, branches and subsidiaries in India (specifically in the form of global capability centres, centres of excellence and innovation centres). Lastly, there is also the risk of companies appointing titular CEOs if the global CEOs are going to be considered as ‘significant beneficial owners’, just to work around these reporting and compliance requirements under Indian law.

Significant influence should not be determined basis unverified statements published in the print or electronic media during the India visit of such Global CEOs. They should not be taken as evidence of such persons exercising significant influence over the reporting Indian company. Significant influence must be determined basis official records. Such evidence can be found only in the minutes of the Board meeting of the reporting Indian company. The CEO/ managing director of the reporting Indian company is legally obliged to function under the overall superintendence, direction and control of the Board of Directors of the reporting Indian company and within the authorities delegated to such CEO/ managing director by the Board of the reporting Indian company. Any evidence to the contrary can be ascertained only from the minutes of the board meetings, which are conclusive evidence of what transpired at the meeting pursuant to Section 118 of the Act. The powers to manage reporting Indian company are legally vested in the board of directors of the reporting Indian company under Section 179 of the Act and other provisions of the Act, and not with the Global CEO. The performance evaluation of the CEO/ managing director is done by the nomination and remuneration committee and the board of directors in India. Metrix reporting system of MNCs cannot form the basis to arrive at such conclusion. Merely because the reporting Indian company adopts certain global policies of MNCs cannot amount to the Global CEO exercising significant influence over the reporting Indian company.


To build a robust regulatory regime, suitable amendments should be made to lay down an unambiguous threshold of regulation and achieve consistency between the Act and the SBO Rules. Further, given the FATF recommendations and the legislative intent, it is imperative to narrow the regulatory net of who are ‘significant beneficial owners’ and move away from ‘significant beneficial owner’ to ‘ultimate beneficial owner’. Alternatively, if the ROC’s view is to be given full effect, then all companies in India would have to re-evaluate their existing processes – including board appointments (whether nominee directors or independent directors should be appointed), whether delegation of authority needs to be overhauled, whether clearer documentation is needed to show that decision making is independent of the decisions of the group, shareholder veto rights, etc., which would lead to large scale corporate exercise. This in turn would impact not just MNCs with Indian subsidiaries, but also Indian groups/ conglomerates, some of whom have hundreds of group companies.

[1] General Officer Commanding in Chief and Ors v. Subhash Chandra Yadavm, AIR 1988 SC 876.

[2] You can read more about the inherent ambiguities in the legal framework governing ‘significant beneficial owners’ here – Identification of SBO – Deeper Reflections | India Corporate Law ( and here – New SBO Rules – Implementation Challenges | India Corporate Law (

[3] Registrar of Companies, Ministry of Corporate Affairs, accessible here – Registrar of Companies (

[4] Section 166(2) of the Act.

[5] Section 166(3) of the Act.

[6] Section 166(4) of the Act.

[7] Section 166(5) of the Act.

[8] Interestingly, listed companies (including foreign listed companies) and their wholly owned subsidiaries were to be exempted from the disclosure requirements attaching to ‘significant beneficial ownership’ pursuant to Rule 8 of the Draft Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2018.

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Photo of Bharat Vasani Bharat Vasani

Senior Advisor – Corporate laws at the Mumbai office of Cyril Amarchand Mangaldas. Bharat has over 30 years of experience at senior management level. His areas of specialization includes company law, corporate and commercial laws, securities law, capital market, mergers and acquisitions, joint…

Senior Advisor – Corporate laws at the Mumbai office of Cyril Amarchand Mangaldas. Bharat has over 30 years of experience at senior management level. His areas of specialization includes company law, corporate and commercial laws, securities law, capital market, mergers and acquisitions, joint ventures, media & entertainment law, competition law, employment law and property matters. He heads firm’s media and entertainment law practice.  He is highly regarded in Government circles and in various industry organizations for his proactive approach on public policy issues. Bharat was a member of the Expert Committee appointed by the Government of India to revise the Companies Act, 2013.

Prior to joining the Firm, Bharat was the Group General Counsel of the Tata Group.  He has been at the helm of and steered several large key M&A transactions pursued by the Tata Group in the last 17 years.

Bharat’s contribution to the legal fraternity has been recognized by the Harvard Law School’s Award for Professional Excellence in 2016. Bharat has won several other national and international awards for his various achievements. He had a brilliant academic record in law and first rank holder in all India company secretary examination. He can be reached at

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Partner  in the General Corporate Practice at the Bangalore office of Cyril Amarchand Mangaldas. Bharath advises on entry strategy, foreign investment, investigations and general corporate advisory, specializing in employee stock options, investigations and executive appointment and remuneration. He is also part of the

Partner  in the General Corporate Practice at the Bangalore office of Cyril Amarchand Mangaldas. Bharath advises on entry strategy, foreign investment, investigations and general corporate advisory, specializing in employee stock options, investigations and executive appointment and remuneration. He is also part of the core team of the firm’s Corporate Governance Centre, the first of its kind, it is the centrepiece of the Firm’s thought leadership and advisory initiatives in the practice area, which focuses on advising various stakeholders in the governance space. Bharath can be reached at

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