This lesson covers the penalty framework, fraudulent reporting consequences, and exemptions under Section 90 of the Companies Act, 2013 (read with the SBO Rules).
## 1. Entities NOT treated as Significant Beneficial Owners
The SBO regime does not apply to holdings by:
Investment vehicles registered with and regulated by SEBI — Mutual Funds, AIFs, REITs, InVITs.
Investment vehicles regulated by RBI, IRDAI, or PFRDA.
Logic: These vehicles are already supervised by sectoral regulators, so layering SBO disclosure on top would be redundant.
## 2. Contraventions & Penalties
### (a) Penalty on the SBO
If an SBO fails to make the required declaration:
₹50,000 flat penalty, plus
₹1,000 per day during continuing failure,
Maximum: ₹2,00,000.
### (b) Penalty on the Company (and its officers)
If the company fails to:
maintain the SBO register,
file required information,
take the prescribed actions, or
allow inspection,
then:
Defaulter
Flat Penalty
Per-day
Maximum
Company
₹1,00,000
₹500/day
₹5,00,000
Officer in default
₹25,000
₹200/day
₹1,00,000
## 3. Compounding & Fraud
Compoundable Offence: Violations of Sec 90 and the SBO Rules by the company or its officers are compoundable — settled by paying a penalty instead of prosecution.
Sec 447 Fraud: If an SBO/Officer in Default intentionally files false or incorrect information, or suppresses material facts, they are liable for fraud under Section 447 — carrying imprisonment and fine.
## 4. Exemption for Government Companies
The SBO Rules do not apply to Government Companies, provided they have filed their financial statements and annual returns as per the regulations. Non-compliance with filings strips the exemption.
## Memory Hook
SBO defaulter: 50K + 1K/day → 2L (max).
Company defaulter: 1L + 500/day → 5L.
Officer: 25K + 200/day → 1L.
Worked example
### Example 1
Example 1 — Continuing default by SBO:
Mr. A becomes an SBO of XYZ Ltd on 1 April but files BEN-1 only on 15 May (45 days late). Penalty = ₹50,000 + (45 × ₹1,000) = ₹95,000 (within the ₹2,00,000 cap).
### Example 2
Example 2 — Company default:
XYZ Ltd fails to maintain the SBO register for 200 days. Penalty on company = ₹1,00,000 + (200 × ₹500) = ₹2,00,000 (well within ₹5,00,000 cap). Each officer in default pays ₹25,000 + (200 × ₹200) = ₹65,000.
### Example 3
Example 3 — False filing:
Mr. B knowingly files BEN-1 hiding his real shareholding. He is liable under Sec 447 (fraud) — not merely compoundable penalty.
⚠️ Common exam mistakes
Applying SBO rules to SEBI-regulated Mutual Funds/AIFs/REITs/InVITs — they are explicitly carved out.
Forgetting the ₹2,00,000 cap on the SBO's individual penalty and continuing to add ₹1,000/day beyond it.
Treating intentional false reporting as compoundable — it is fraud under Sec 447, which is not compoundable.
Assuming Government Companies are blanket-exempt; the exemption is conditional on timely filing of FS and annual returns.
Bare-Act text Section 90(10)–(12) · Companies Act, 2013 · click to expand
Section 90(10): If any person fails to make a declaration as required under sub-section (1), he shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to a maximum of two lakh rupees.
Section 90(11): If a company, required to maintain register under sub-section (2) and file the information under sub-section (4) or required to take steps under sub-section (4A), fails to do so or denies inspection as provided therein, the company shall be liable to a penalty of one lakh rupees and in case of continuing failure, with a further penalty of five hundred rupees for each day, after the first during which such failure continues, subject to a maximum of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with a further penalty of two hundred rupees for each day, after the first during which such failure continues, subject to a maximum of one lakh rupees.
Section 90(12): If any person wilfully furnishes any false or incorrect information or suppresses any material information of which he is aware in the declaration made under this section, he shall be liable to action under section 447.