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What Constitutes a Beneficial Owner Under Indian Law?

Published: Wednesday, May 24, 2023

The term 'beneficial owner’ is frequently used in various areas of Indian legislation, one of which is the recently  amended Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (the “NDI Rules), which were released through Press Note 3 by the Ministry of Commerce and Industry (Press Information Bureau).


The amended NDI Rules state that, in order to curb opportunistic takeovers/acquisitions of Indian companies, a foreign entity which shares a land border with India or whose ‘beneficial owner’ is situated in or is a citizen of any country which shares a land border with India, can only invest in India under the government approval route (the "NDI Rules – 2020 Amendment”)

Also, in the event of transfer of ownership of any foreign direct investment in an Indian entity, directly or indirectly resulting in the beneficial ownership of such Indian entity falling within the above restriction/purview of a country sharing land borders with India, such subsequent change in beneficial ownership will also require prior government approval.

In India, foreign direct investment (“FDI”) is categorized into two classes in terms of its approval route: (i) the automatic route, in which the FDI does not require any prior approval from the Indian Government; and (ii) the government approval route. For any FDI which falls within the purview of the NDI Rules – 2020 Amendment,  government approval would be required before any investment in India is made

There is no definition of ‘beneficial owner’ in the NDI Rules nor in any other Foreign Exchange laws of India. Stakeholders have generally referred to definitions of ‘beneficial owner’ provided under: (i) the Companies Act, 2013 and Companies (Significant Beneficial Owners) Rules, 2018 (CA 2013), (ii) the Prevention of Money Laundering Act, 2002 read with the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (PMLA), and (ii)the Reserve Bank of India Master Direction on Know Your Customer (KYC Directions).

The definition of ‘significant beneficial owner’ under the CA 2013 is an individual who: (i) directly or indirectly holds not less than 10% of the shares in a company; (ii) directly or indirectly holds not less than 10% of the voting rights in the shares of a company; (iii) directly or indirectly has the right to receive or participate in not less than 10% of the total distributable dividend or any other distribution from a company; or (iv) has right to exercise or actually exercises significant influence or control over a company, in any manner other than through direct holdings alone

Pursuant to the recent amendments to the PMLA (notified on 7th March 2023) and to the KYC Directions (the  28th April 2023 update)the definition of ‘beneficial owner’ under the PMLA and KYC Directions have now been brought in line with the CA 2013 definition. All definitions now mention a threshold of 10%, which has brought clarity to the understanding of the term ‘beneficial owner’, even though there is still no specific definition for the NDI Rules.

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Michelle Solomon Le Page is a dual qualified Advocate and Solicitor in India and in England, who is based primarily in Paris, and shares her time between France and India. She speaks English, French and Hindi.  Michelle’s practice is focused on advising European and other international companies and individuals with their business interests in India including all aspects of operating a subsidiary or joint venture in India, from investing and setting up operations in India, purchasing or leasing land and building, employing and terminating workforce, managing shareholder and director relations, executing contracts, distributing and selling products in India, complying with competition laws and related litigations and arbitrations like debt recovery and shareholder disputes. Since 2012, she has been advising clients on Indian operations, acquisitions and dispute resolution across diverse sectors including construction, steel manufacturing, packaging manufacturing and distribution, hearing aids and cochlear implants, medical diagnostics sector, insurance sector, dry bulk shipping, cyber security and hacking, marinas and floating solutions and garment manufacturing and distribution. Michelle read law for 3 years at the Government Law College in Mumbai, and then completed a 3 year Bachelor of Laws degree at the University of London, School of Oriental and African Studies. She subsequently completed the Legal Practice Course at the College of Law in London before joining Clifford Chance London in 2007. She has been a practicing Solicitor of England & Wales from 2009. She joined Solomon & Co. in 2012 after practicing law at Clifford Chance for 5 years, both in their London and Paris offices. Michelle Solomon Le Page’s expertise includes: Corporate & Business Laws including M&A, Joint Ventures & Collaborations Litigation and Arbitration Competition & Consumer Protection Laws Real Estate & Construction Laws Succession & Inheritance Laws

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