Rights of Beneficial Owners vis-à-vis Section 241 of the Companies Act, 2013

Introduction

In companies, it is quite common to find that while shares are registered in the name of one person, the rights attached to the shares viz. the beneficial interest, are exercised by a different person whose identity, in most cases, remain undisclosed. The moot question is whether a beneficial owner can invoke the provisions of the Companies Act, 2013¹ which are available to the members/shareholders of a company. One classic aspect of this issue is the law on oppression and mismanagement which enables the “members” of a company to seek appropriate reliefs from the Tribunal in order to restrain the majority shareholders from acting in a manner prejudicial to the interests of the minority and that of the company and prevent the overstepping of authority by the majority.² It is only those “member/s” who hold specified number of shares who are entitled to invoke the provisions of these sections with sole exception provided to the Central Government³. In this backdrop, this article seeks to analyse the rights of beneficial owners against the oppressive conduct of the majority.

Interpretation of the term “beneficial owner”

The Financial Action Task Force’s (FATF) international standards for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) defines the term “beneficial owner” as a natural person(s) who ultimately owns or controls a customer and/or a natural person on whose behalf a transaction is being conducted and also includes those natural persons who exercise ultimate effective control over a legal person or arrangement.⁴ While the term “beneficial owner” has gained much relevance with the development of the law on prevention of money laundering, the significance of the term in corporate law has evolved over time with the development of corporate jurisprudence. Generally, the term is used to refer to persons who have ultimate control over a person or legal entity in whose favour a transaction is being made.

In corporate law, to understand beneficial ownership, it is also necessary to understand the term “member”. The Companies Act, 2013 provides an exhaustive definition for the term “member” which refers to the following persons⁵:

(i) subscribers to the memorandum of the company;

(ii) every person who agrees in writing to become a member of the company and whose name is included in the register of members; and

(iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository.

Typically, while the members are ordinarily entitled to all the rights attached to the shares, the law also envisages circumstances where a person, who is registered as a member, holds the shares for the benefit of another person viz. a beneficial owner. Generally, the term “beneficial owner” refers to a person holding beneficial interest in the shares of a company. For instance, persons in favour of whom charge is created on shares or a collateral agreement is executed holds beneficial interest in the shares. Thus, while the term member or shareholder denotes the registered owner of shares, that is, the person in whose name the shares stand registered in the books of the company, what marks the line of difference between a member and a beneficial owner is the vesting of beneficial interest. In other words, when a member holds shares in his name and exercises all the rights in relation to such shares, he is the actual/real owner. Whereas when a member holds shares in his name but the rights in relation to such shares are exercised by another person, the former is the registered owner holding the shares in trust for the latter who is the beneficial owner.

Under the Companies Act, 1956⁶, every person whose name appeared in the register of members as holder of certain shares but did not hold beneficial interest in the shares was required to make a declaration to the company specifying the person who held the beneficial interest in the shares.⁷ A similar position has been maintained under the Companies Act, 2013. The beneficial interest in relation to the shares of a company is defined to include the rights or entitlements of a person, either by himself or together with other persons, through a contract, arrangement or otherwise, to⁸:

(a) exercise or cause to be exercised any or all of the rights attached to such shares; and

(b) receive or participate in any dividend or distribution in respect of such share.

The definition of “beneficial interest” is couched in such wide terms that confers on a beneficial owner all the rights that a registered owner could exercise in relation to such shares like the right to receive dividend, right to receive bonus shares, etc. However, under the law as it exists today, a beneficial owner does not fall within the definition of the term “member” in its strict sense. As noted, a member is a person who holds shares in his name and has his name entered in the register of members of a company. However, a beneficial owner only holds the beneficial interest attached to the shares. Notably, while every company is required to maintain a register of beneficial owners along with description of the beneficial interest held by such beneficial owners and although a beneficial owner is entitled to exercise the rights attached to the shares in the same manner as that of a shareholder, a beneficial owner does not have the shares registered in his name to fall within the definition of the term “member”.

Evolution of the concept of beneficial ownership under the Companies Act

While tracing the evolution of beneficial ownership in company law, it can be understood that the concept found no recognition under registration of the Joint Stock Companies Act, 1850⁹, Joint Stock Companies Act, 1857¹⁰, the Companies Act, 1866¹¹ or the Companies Act, 1913¹². For instance, Section 22 of the 1850 Act¹³ provided that in distributing dividend, the company was not under any legal obligation to take notice of any trust, whether express, implied, or constructive, to which any share is subject and that the company is discharged from liability as long as dividend has been distributed to the person whose name appeared in the books of the company as the holder of shares. Further, in terms of Section 19¹⁴, no person would be liable as a shareholder merely by reason of accepting a transfer of shares unless a memorial of such transfer was filed. The position of law was further made clear under the 1857 Act which provided for an explicitly restrictive definition of a shareholder. Under the 1857 Act, no notice of any trust, express or implied or constructive, could be entered on the register or be receivable by the company; and it was only that person who had accepted any share in a company registered under the Act, and whose name was entered in the register of shareholders, and no other person that would be deemed to be a shareholder.¹⁵ The concept of beneficial ownership and its disclosure was not recognised until the Companies Act, 1956. A similar position was maintained under the 1866 Act and 1913 Act which provided that no notice of any trust shall be entered in the register of members.¹⁶

Interestingly, even the 1956 Act, at the time of its introduction, under Section 153¹⁷, provided that the companies are not to take notice of any trust, whether express or implied, in the register of members. It was in light of the report of the Administrative Reforms Commission and the various suggestions of the Government that the Companies (Amendment) Act, 1974¹⁸, inter alia, sought to deal with the issue of benami holding of shares by introducing Section 187-C to the 1956 Act. Notably, Section 187-C provided for a non obstante clause thereby enabling companies to take note of the beneficial interests held in relation to the shares and file necessary returns despite the statutory mandate of the companies in terms of Section 153 to not take notice of any trust in the register of members. Titled as “declaration by persons not holding beneficial interest in any share”, Section 187-C provided for the following mandatory disclosure requirements:

(i) The registered owner of the shares i.e. the person whose name appears in the register of members, who did not hold the beneficial interest of such shares was required to make a declaration to the company specifying the name and other particulars of the person who holds the beneficial interest in such share.

(ii) The beneficial owner of shares was required to make a declaration to the company, within 20 days of the commencement of the 1974 Amendment Act, specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the company and such other particulars as may be prescribed.

(iii) The beneficial owners were further required to intimate the company of the changes in beneficial ownership within thirty days of such change.

(iv) The company was also thrusted with the obligation to take note of such beneficial interest and file requisite returns with the Registrar of Companies within thirty days from the date of receipt of declaration.

The rationale for the necessity of disclosure of beneficial interest in shares is to promote transparency and to prevent the misuse of the corporate vehicle. Often, it is seen that companies, themselves being artificial entities, are held by other artificial entities, creating an intricate web of holdings, and thus rendering it difficult to identify the individuals holding and exercising ultimate control over the entities. Further, there have been multiple instances where, the individuals holding such entities, taking advantage of the corporate veil, have, without disclosing their interests, used the entities for activities like money laundering and tax evasion.¹⁹ Thus, with a view to curtail such instances of malpractices and to bring about transparency and efficiency in the corporate governance framework, the Companies (Amendment) Act, 1974 had sought to introduce the mandatory disclosure of the particulars of beneficial interest held by the registered owners, beneficial owners and the companies.

With the introduction of the Companies Act, 2013, the legislature, keeping in mind the objectives of Section 187-C of the erstwhile Act, has provided for similar disclosure requirements of beneficial interest in shares in Section 89. Curiously, while mostly maintaining a similar position as in the 1956 Act, the 2013 Act has provided that where the beneficial owner fails to disclose the nature of interest as required under the provision, he shall not be entitled to enforce the rights in relation to the shares in which he holds such beneficial interest. Whereas, under the 1956 Act, if the registered owner failed to disclose any charge, promissory note or any other collateral agreement, created, executed or entered into by him in relation to any share or if any hypothecation of the shares is made by him, the beneficial owner or anyone claiming under him could not enforce such charge, promissory note or other collateral instruments. Thus, under the 2013 Act, the burden lies on the beneficial owner to disclose the beneficial interest held by him in relation to the shares of a company.

Notably, while the 2013 Act does not contain a provision equivalent to Section 153 of the erstwhile Act, Clause 4 of Table F of Schedule 1 to the 2013 Act²⁰ provides that except as required by law, no person shall be recognised by the company as holding any share upon any trust, and the company shall not be bound by, or be compelled in any way to recognise any equitable, contingent, future or partial interest in any share, or any interest in any fractional part of a share, or, except only when the regulations or the law otherwise provided, any other rights in respect of any share. In this regard, it is essential to note that the applicability of the said provision is qualified in that its applicability is subject to the exceptions, if any, provided under the Act and does not impose a blanket ban on the recognition of beneficial interests in relation to the shares. Thus, sub-section (6) of Section 89 provides for the exception envisaged under clause (4) aforesaid by holding that where any declaration of beneficial interest is made to the company by the registered owner or the beneficial owner, the company has to make note of such declaration in the register concerned and file, within thirty days from the date of receipt of declaration, a return in the prescribed form with the Registrar of Companies.

Interplay between Section 89 and the Prohibition of Benami Property Transactions Act, 1988

The Prohibition of Benami Property Transactions Act, 1988²¹ (Benami Act) defines benami transaction as a transaction or arrangement where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person and the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration.²² In such benami transactions, the person who holds the property is termed as benamidar and the person who enjoys the benefits arising out of the property is called a beneficial owner. Section 3 of the Benami Act²³ prohibits all forms of benami transactions. While on a bare reading of Section 89 of the 2013 Act alongside Sections 2 and 3 of the Benami Act, it may appear that Section 89, in recognising beneficial ownership in shares and allowing its enforcement, is contrary to the rationale of the Benami Act, it is essential to understand that Section 89 carves out a rather restricted exception to Section 3 of the Benami Act which prohibits benami transactions. In other words, the recognition of beneficial ownership under the 1956 Act and 2013 Act is not absolute and is subject to the fulfilment of all the essential conditions of disclosure envisaged under the relevant provisions. Therefore, where a beneficial owner had disclosed his beneficial interest in the shares in terms of Section 187-C of the 1956 Act, but the company had failed to file the prescribed return with the Registrar of Companies, it was held that the beneficial owner would not be entitled to exercise his rights in relation to the shares in which he claims to hold beneficial interest.²⁴ Further, the exception has been made out to cater to instances such as agency, trust, and such other legal arrangements where registered ownership and beneficial ownership vest in different persons and are not essentially benami in nature.²⁵ However, it is also relevant to note that while a declaration in terms of Section 89 of the 2013 Act shall be a valid defense against allegations of benami holding of property, such a declaration cannot operate as an absolute immunity against the initiation of action under the Benami Act.

Rights of beneficial owner to receive dividend, rights shares and bonus shares

In terms of Section 123(5) of the 2013 Act²⁶, no dividend shall be paid by a company in respect of any share therein except to the registered shareholder of such share or to his order or to his banker. Thus, it is clear that it is only the registered owner of shares who is entitled to receive dividend paid in relation to the shares. Further, sub-section (9) of Section 89 provides that the company is discharged from its liability to pay dividend where such payment has been made to the registered member and that the disclosure of beneficial interest in the shares and its recognition in terms of the Act shall not, in any manner, affect the payment of dividend to the registered holder of shares. However, it must also be noted that Section 123(5) provides that the company shall pay dividend to the order or banker of the registered shareholder. Therefore, where appropriate directions are received from the registered owner, the company shall distribute dividend to the beneficial owner of the shares. On similar lines, with regard to rights issue, Section 62²⁷ provides that such shares are to be offered to the equity shareholders of the company and with regard to bonus shares, Section 63²⁸ provides that company shall issue bonus shares to its members. The usage of the expressions “equity shareholders” and “members” makes it clear that it is the registered holders of shares who are entitled to receive rights and bonus shares. The registered holder may subsequently transfer the shares to the beneficial owners, subject to the provisions of the Act or can declare the beneficial owner of these shares as mandated under Section 89. Therefore, a declaration of beneficial interest, by itself, does not place the company under an obligation to pass on the benefits attached to the shares to the beneficial owners and it only serves as a constructive notice on the company.²⁹ The remedies that are thus available to the beneficial owners, in the event of a dispute between the beneficial and registered owner, are rather contractual and the Act does not envisage a remedy to the beneficial owners who are deprived of the beneficial interests attached to the shares.

Transferee as a holder of beneficial interest

Upon execution of the instrument of transfer, the transfer becomes effective between the transferor and transferee and the transferee is vested with the interest in the shares transferred. The vesting of title of the shares in the transferee does not stand postponed merely because certain formalities have to be gone into under the provisions of the Act so as to vest a further marketable title in such shares in the purchaser.³⁰ Therefore, upon a valid transfer of shares, the transferee gets vested with the beneficial interest in the shares so transferred. However, the transfer as such does not vest the transferee with all the rights recognised to a shareholder under the Act until the instrument of transfer is lodged and registered with the company. In other words, although beneficial interest arises out of an agreement in writing, the legal title in the shares is transferred only when the agreement is accepted by the company after all inquiries.³¹ Until the time such registration is granted, the person whose name is found in the register alone can be treated as the shareholder by the company. In Colonial Bank v. Hepworth³² it was held that until the transfer of shares is registered by the company, the title of the transferee remains inchoate, and the registered owner continues to be vested with the legal title. However, during the interregnum, that is from the date of the transfer till the date on which the transfer is registered by the company, the transferee becomes the owner of the beneficial interest though the legal title continues with the transferor.³³ This antecedent right in the transferee is enforceable, so long as no obstacle to it is shown to exist in any of the articles of association of a company or a person with a superior right or title, legal or equitable, does not appear to be there.³⁴

While affecting a transfer of shares, the transferor makes an implied representation to the transferee that the transfer will be approved and duly registered by the company. Thus, if the company refuses to recognise and register the transfer for no default of the transferee, the transferor, by virtue of his holding the shares in his name despite receiving adequate consideration, is obliged to hold the shares in trust for the transferee and is bound to exercise the rights attached to such shares as per the directions of the transferee. The relationship of a trustee and a trust in the form of a cestui que trust is established between the transferor and transferee.³⁵ The transferee is entitled to exercise the rights in relation to the shares transferred to him through the registered owner of the shares until the transfer is registered by the company. The registered owner acts as the constructive trustee of the transferee. In Killick Nixon Ltd. v. Bank of India³⁶, the Court, while considering the relationship between the transferor, transferee and the company inter se, observed that the transferor, being a constructive trustee of the transferee, is obliged to carry out the just demands of the transferee and the transferee is entitled to call upon the transferor to exercise on his behalf all rights which pertain to his ownership of shares of a company. In Killick Nixon case³⁷, while examining the interpretation of the term “member” for the purposes of Section 397 of the 1956 Act³⁸, the Court observed that the trend of judicial decisions appeared to enlarge the ambit of term “member” than to restrict it. Therefore, the transferee can require the transferor to exercise the voting rights attached to the shares in the manner directed by the transferee. In E.D. Sassoon & Co. Ltd. v. K.A. Patch³⁹, the Bombay High Court observed that since the transferee holds the whole beneficial interest and the transferor has none, the transferor must comply with all reasonable directions that the transferee gives. Upon a detailed examination of the relationship between the transferor and transferee, the Court observed that equity treated the purchaser as if he was the real owner and compelled the registered holder to act as the agent of the beneficiary. Therefore, the transferee can require the transferor to attend the meetings of the shareholders and vote according to his directions, sign documents in relation to the issuance of fresh capital, call for emergent meetings and compel the transferor to pay the dividend as he may have received from the company.⁴⁰

In Chunilal Khushaldas Patel v. H.K. Adhyaru⁴¹ , the Supreme Court observed that where a contract of sale of shares is entered into between the transferor and transferee and such contract precedes the date of declaration of dividend by the Company, the transferee shall be entitled to receive the dividend declared on the shares. Consequently, where, subsequent to the date of transfer, the transferor receives the dividend in relation to the shares transferred due to the Company’s default in registering the transfer, the transferee is entitled to recover the dividend received by the transferor and the transferor holds the dividend in trust for the transferee. In Vikas Jalan v. Hyderabad Industries Ltd.⁴², the Company Law Board, while examining the power of the Board to refuse the registration of transfer of shares, observed that the bonus shares issued in the name of the transferor in relation to the shares that were transferred and the transfer precedes the issue of bonus shares, the transferor holds the bonus shares in trust for the transferee. While the transferee, as a beneficial owner, is entitled to exercise the rights attached to the shares through the transferor, the transferee is also obliged to indemnify the transferor against the payment made by the transferor for call money.⁴³

Relief to beneficial owners for oppression and mismanagement

In terms of Section 241 of the Companies Act, 2013, any “member” who is of the opinion that the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members shall have the right to apply to the Tribunal. The Act consciously and specifically entitles only a person who is a member to maintain a petition for oppression and mismanagement under the Act. As noted, the term “member” refers to a person who is either a subscriber to the memorandum or a person who has become a member by virtue of a written agreement or a person who holds shares and as such has his name entered in the records of a depository. Thus, a beneficial owner of the shares is not registered as a member of the company.

With regard to the entitlement of a beneficial owner to maintain a petition under Section 241 for oppression and mismanagement, the position of law remains unsettled. The courts have expressed conflicting opinions on the right of a person who is not a member of the company to maintain a petition seeking relief against oppression and mismanagement. The Company Law Board in Sk. Abdul Sabir v. Nirmal & Navin (P) Ltd.⁴⁴, while dealing with the preliminary issue as to whether the petitioners who were not members of the respondent company could be allowed to maintain a petition under Sections 397, 398⁴⁵ and 401⁴⁶ of the erstwhile Companies Act, relied upon the decisions in Munshi Ram v. Financial Commr.⁴⁷ and V.B. Rangaraj v. V.B. Gopalakrishnan⁴⁸ to hold that a person whose name is not entered in the register of members was not eligible to lodge a petition under Section 397 or Section 398 of the Act. Where the name of the petitioner was not entered in the register of members, it was observed that, he was not a “member” as defined under Section 41⁴⁹ even though an endorsement in his name was made in the share certificate.

Similarly, in Nipha Trade and Commerce (P) Ltd. v. Girish Malpani⁵⁰, it was the contention of the petitioners that they had entered into a share purchase agreement with the respondents to purchase 76.09% of the shares of the company and that therefore they were entitled to maintain a Section 241 petition as beneficial owners of the shares that were proposed to be transferred under the agreement. Refuting the contentions of the petitioners, the National Company Law Tribunal (NCLT), Hyderabad Bench observed that since it is settled law that a shareholder who is not a member cannot maintain an application under Section 241 of the Companies Act, 2013, it was imperative for the company petitioners to establish that they were the members of the respondent Company as on the date of filing of the company petition. Further, dealing with the rights of a transferee, the Tribunal observed that the rights of the transferee are limited and that they can only call upon the company in the manner specified under law to register the shares in their name and until such registration is made, no rights shall accrue in favour of the transferee in relation to the shares. The Tribunal also observed that the company recognises as a member only those persons whose names appear in the register of members and only upon such persons calls for unpaid capital can be made, and dividend declared by the company is legally payable. However, certain equities may arise between the transferor and the transferee on the execution of certain instruments and one such equity is the right of the transferee to claim the dividend declared and paid to the transferor who is treated as a trustee on behalf of the transferee.

Further, in Committee of Administrators Pendente Lite v. Insilco Agents Ltd.⁵¹ , due to their divergent views, the members of the Kolkata Bench of the NCLT referred the question to a third member at the Ahmedabad Bench as to whether a petition against oppression and mismanagement filed in the capacity of a significant beneficial owner was maintainable. Dealing with the reference, the Referral Bench held that the definition of member under Section 2(55) is exhaustive and not inclusive and therefore, significant beneficial ownership cannot be equated with the factual holding of shares. An appeal against the decision of the Referral Bench is currently pending before the Principal Bench of the appellate authority.⁵²

Taking a contrary view, the Calcutta High Court in Vikram Jairath v. Middleton Hotels (P) Ltd.⁵³ observed that the beneficial owner may exercise his rights in relation to the shares through the registered owner, who, in that case, acts as a trustee of the beneficial owner. In that case, relying on the decisions in Kilnoore Ltd. (In Liquidation), In re, Unidare Plc v. Cohen⁵⁴, Wood Preservation Ltd. v. Prior⁵⁵, Hardoon v. Belilios⁵⁶ and Howrah Trading Co. Ltd. v. CIT⁵⁷, the Court held that where the transferee’s name was not registered in the books of the company despite a duly executed instrument of transfer of shares, the seller/transferor then becomes a trustee for the buyer and therefore, for the transferee to maintain an action against the company for oppression and mismanagement, the reliefs would have had to be couched in terms through the transferor. In Abraham Reji v. Meenachil Hotels and Resorts (P) Ltd.⁵⁸, the question of entitlement of transferees of shares to maintain a petition for oppression and mismanagement pending registration of transfer by the company was raised. In that case, the respondents had agreed to transfer shares to the petitioners who had contributed to the repayment of term loan of the company. However, the respondents, despite having executed the necessary share transfer forms and acknowledging the transfer in the Board Resolution, unlawfully withheld the duly completed share transfer forms and original share certificates and consequently, a petition under Sections 241, 242⁵⁹, and 244⁶⁰ read with Sections 58⁶¹ and 59⁶² was filed by the petitioners. Following the decision in Vikram Jairath case⁶³, the adjudicating authority held that the petitioners were considered as beneficial owners and had every right to protect their beneficial interest in such shares even before their name is entered in the share register. Upholding the decision of the adjudicating authority, the Appellate Tribunal observed that since in terms of the agreement between the parties, the transferees were supposed to have shareholding above the required minimum threshold of 10% and they enjoyed the beneficial interest in the shares of the company and hence, had the right to file the petition against the oppression and mismanagement.⁶⁴

Waiver of the conditions for eligibility

Where any member, by means of an application under Section 241, complains of acts of oppression and mismanagement committed against himself or other members of a company, such an application shall, in case of a company having share capital, be preferred by not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, and in case of a company not having share capital, by not less than one-fifth of the total number of its members.⁶⁵ However, the proviso to Section 244(1) empowers the Tribunal to waive the threshold required. The issue of whether a beneficial owner shall take refuge under the proviso to Section 244(1) to seek a waiver of the threshold required for maintaining an application under Section 241 remains unresolved. The National Company Law Appellate Tribunal in India Awake for Transparency v. Hasham Investment and Trading Co. (P) Ltd.⁶⁶, while interpreting Sections 241, 242 and 244 of the Companies Act, 2013, observed that the proviso to clauses (a) and (b) of Section 241(1) merely empowers the Tribunal to waive all or any of the requirements specified in clause (a) or clause (b) so as to “enable the members to apply” and does not do away with the requirement that the application must be filed by a “member”. The proviso to clauses (a) and (b) does not waive or control the opening words of the section which clearly say that the right would be of the members to apply and therefore gives rights to only “members” to seek waiver of all or any of the requirements specified in clauses (a) and (b).

However, in Vikram Jairath case⁶⁷, the High Court of Calcutta, taking note of the entitlement of transferees to maintain a composite petition under Sections 241 and 242 read with Sections 58 and 59, observed that a transferee of shares whose name is not entered in the register of members could claim an exemption under Section 244 for maintaining a petition for oppression and mismanagement. Following the decision of the High Court, the Appellate Tribunal, in Meenachil Hotels & Resorts (P) Ltd.⁶⁸, dealing with the right of such transferees, observed that “in any case, as evident from the proviso to Section 242(1)(b) of the “Companies Act, 2013” that the “Tribunal” could waive all or any of the requirements specified in clause (a) or clause (b) to enable the member to apply under Section 241 of the “Companies Act, 2013”.

Notably, while the decisions in Vikram Jairath case⁶⁹ and Meenachil Hotels & Resorts (P) Ltd.⁷⁰ are valid precedents to the extent of the entitlement of transferees to maintain composite petitions despite not being registered as a member, the reliance on the power of the NCLT to waive the eligibility requirements of such transferees under sub-section (1) of Section 244 is misplaced. As noted above, the powers of the NCLT under the proviso to Section 244(1) is limited to waiving the threshold limits prescribed under clauses (a) and (b) of Section 244(1) for the members to maintain a petition under Section 241. Such powers cannot be extended to do away with the requirement that a petition for oppression and mismanagement must be filed only by a member.

Conclusion

Indisputably, in light of the significant growth of benami holdings, the introduction of mandatory disclosure of beneficial interest held by persons other than registered owners in the shares of a company is a positive measure towards better corporate governance. However, while the Act on one hand recognises the concept of beneficial ownership and lays down a framework for its adequate disclosure and enforcement, it is still unclear as to how their rights as against the ostensible owners of the shares are enforced as the 2013 Act does not contain any provisions for such enforcement. In the context of oppression and mismanagement, it must be noted that the 2013 Act, despite recognising the concept of beneficial ownership in relation to the shares, has provided that only the members i.e. registered holders of shares, are entitled to seek appropriate reliefs from the Tribunals. While, the decision in Meenachil Hotels & Resorts (P) Ltd.⁷¹, holds that a transferee, as a beneficial owner, was entitled to maintain a petition against oppression despite not being registered as a “member”, in all other cases of beneficial ownership of shares, such as the beneficial ownership under Section 89, the beneficial owner shall be able to exercise his rights only through the registered owner who holds the shares in trust for the beneficial owner. Therefore, the recognition of a beneficial owner under Section 89 and the catena of decisions referred above on the rights of a transferee whose name is not registered in the records of the company, only leads to the logical conclusion that the exercise of rights of beneficial owners including that rights under Sections 241/242 would be better served, if necessary statutory amendments are made providing for exercise of such rights outlining the corresponding duties of the registered owner in this regard.