MCA restricts Scrutiny on Beneficial Ownership Standards for Foreign-Owned Companies

The Ministry of Corporate Affairs (MCA) has increased its inspection of beneficial ownership criteria for companies owned and controlled by foreign investors, which legal experts believe could have an impact on compliance practices.

The Registrar of Companies (RoC) recently issued notices to many foreign-owned and controlled companies, including LinkedIn, for alleged violations of beneficial ownership disclosure standards, according to two people familiar with the situation.

According to two people acquainted with the matter, the Registrar of Companies (RoC) recently issued notices to a number of foreign-owned and controlled companies, including LinkedIn, for alleged violations of beneficial ownership disclosure guidelines.

Last week, the RoC Delhi levied a Rs.27 lakh penalty on Microsoft-owned professional networking platform LinkedIn and its key functionaries, including CEO Satya Nadella, for violating SBO guidelines. Prior to that, the RoC slapped a Rs.18 lakh penalty on Gurgaon-based Leixir Resources and its foreign directors for failing to declare SBO as required by the laws.

An email submitted to the ministry went unanswered.

India has increased its regulatory scrutiny of beneficial ownership. The market regulator, the Securities and Exchange Board of India (Sebi), has tightened various rules governing beneficial ownership of foreign portfolio investors (FPI) over the last year.

According to one person, the RoC steps are also intended to reduce regulatory arbitrage between foreign investments in listed and unlisted companies in India. Foreign investments in listed companies in India can only be made through the FPI channel. To obtain an FPI licence, a fund must comply with Sebi standards and present SBO information prior to registration.

However, investments in unlisted companies are conducted through the foreign direct investment route, which does not require any prior investigation.