SBO Confusion After FEMA 2024: CEOs Beneficial Owners?

Introduction:

"Clarity is the bedrock of trust in law. Absent clarity, even compliance runs the risk of being haphazard guesswork." For companies operating in India's corporate governance space, it was hoped that the SBO requirements would be the bedrock of clarity; specifying the individuals who had ultimate control and/or who benefited from the asset, even through multiple layers of control and ownership.

In early 2024, however, the Registrar of Companies (RoC) declared Satya Nadella (Microsoft CEO) and Ryan Roslansky (LinkedIn CEO) as significant beneficial owners of LinkedIn India, even though neither held shares or acted as a director of the Indian entity. In close temporal proximity, Samsung Display Noida was penalized for failing to identify its significant beneficial owners who were obscured within an intricate set of multi-layered foreign structures.

These two cases underline the deep ambiguity in the sufficient part of the SBO framework, especially concerning the 10% threshold and the poorly defined "significant influence" test. The 2024 amendments to the FEMA process were purportedly intended to simplify ownership disclosures, particularly across borders, but did not resolve the critical definitional and enforcement gaps that remain in the laws.

This blog is a review of how these ambiguities affect companies, CEOs, regulators, and India's capacity to comply, globally. What lessons can and should be applied from other jurisdictions to make the system more transparent and ultimately ensure that it is fair?

Main Blog:

The idea of Significant Beneficial Ownership (SBO) was first conceived in India to add greater transparency to the companies which have intricate shareholding arrangements or foreign entities within their structure. Simply, this meant disclosing individuals that controlled, or were beneficially entitled to securities in a company, no matter how many people one had to go through. Here's where it gets messy: it was meant to be helpful, but has now turned into a double-edged sword.  Yes, it has improved corporate governance, discourages money laundering and ties India into compliance regulations as seen globally, however, vague provisions and subjective interpretations have become too sketchy leading to confusion, and nothing semiconductor or blockchain in scope to date, except to MNCs, top execs and other small firms aiming to comply.

The heart of the SBO regime is the 10% threshold rule: any person directly or indirectly holding 10% or more of shares, voting rights, or dividend rights, or exercising "significant influence" or "control", must be disclosed as an SBO. The threshold provides a clear, numerical test, while the second limb, “significant influence” is subjective and can be difficult to predict. The issue became acute in the LinkedIn India case, when the Registrar of Companies (RoC) declared Satya Nadella, CEO of Microsoft, and Ryan Roslansky, CEO of LinkedIn, as SBOs of LinkedIn India. Notably, neither actually owned shares in the Indian subsidiary and even were not formally on the Board. The only "influence" gleaned was from their positions in the global parent companies. This broad interpretation of influence worried corporate India, as it suggested that CEOs of foreign parent companies could be caught in compliance duties without any vestige of equity.

The Samsung Display Noida case provided another element to the puzzle. The company contended that its nearest shareholder was a foreign corporation, and no individual owned more than 10% of the shares. Nevertheless, the RoC traced the indirect ownership back to founders in South Korea and alleged the company was in default of filing Form BEN-2 listing the persons as SBOs and imposed a financial penalty. While the RoC decision demonstrates the regulatory commitment to pierce the corporate veil, it also highlighted the complexities involved in compliance when entities need to trace beneficial ownership through multiple jurisdictions, especially when sharing data is restricted, as it is under foreign privacy laws such as the GDPR.

[Image Sources: Shutterstock]

The FEMA (Non-Debt Instrument) Amendment Rules, 2024 did attempt to resolve some of the vexed issues in the context of cross-border transactions, especially in share swap and overseas investment transactions. They require extensive and detailed disclosures about ownership, including indirect and layered ownership, and try to align ownership reporting under FEMA with SBO norms under the Companies Act. The amendments then stop short of providing clarity on how "significant influence" should be measured, and how Indian regulators should navigate conflicts with the privacy regimes in other jurisdictions. Accordingly, companies remain uncertain about who is an SBO, especially in the realm of cross border transactions that involve global corporate structures.

Although the spirit of the law is consistent with international norms, its application results in a number of issues. To begin, subjectivity in enforcement indicates that registrars, across the country, will arrive at different reasonable conclusions with respect to similar fact patterns which will lead to different conclusions. Second, the costs of compliance may be high, especially for SMEs and subsidiaries of MNCs who may have to engage forensic shareholding analysis, and legal advisory, just to assist in identifying potential SBOs. Third, jurisdictional overreach may jeopardize India's ease-of-doing-business standing if penalties are imposed on foreign directors who do not possess clear ownership or control links.

In order for the framework to be effective, reforms need to be focused and targeted. There should be objective criteria governing "significant influence" decision-making rights, contracting authority or veto rights, to replace the undefined phrase that it currently relies on. Communication and coordination between Indian regulators and their foreign counterparts may mitigate the bureaucratic red tape impeding data access, while embedding privacy principles from the outset. A centralised repository for SBOs; where a secure, non-public SBO registry is built to prevent overlapping disclosures and allows for real-time verification may be useful. Crucially, regulators will need to clearly demonstrate a proportionate stance towards serious concealment of control in contrast to functional connections to ideas and entities.

Conclusion:

The SBO framework as conceived in India was intended to be a key instrument of corporate transparency, but the LinkedIn and Samsung cases demonstrate just how quickly ambiguities can upset even the best-intentioned of companies. The FEMA 2024 amendments were a welcome move to advance cross-border ownership reporting, but they still leave some fundamental terms, including "significant influence," broad and inconsistent construction. Based solely on a nuanced premise of ownership risk, the law currently has a serious chance of extending too far into situations where no ownership exists at all while still falling short in catching hidden controllers that do exist.

What India needs is greater clarity in the law, not just strict enforcement. It needs harmonised cross-border processes, proportional application, and clear rules. It needs a framework that can identify actual beneficial owners and still avoid sanctioning peripheral executives. Other jurisdictions have managed to do this with clearer thresholds, exemptions with definitions, and better dialogue between regulator and industry. If India can find some clarity for its SBO regime, a burdensome compliance obligation may organically transform into a trustworthy paradigm of governance. Until then, it will exist within a nebulous system, where, like most compliance stories, the next chapter will depend on how well law and business are able to work together.

Author: Maitraiy Soni, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney. 

References:

1.     Hindustan Times, “Satya Nadella, LinkedIn, 8 others fined ₹27 lakh for Companies-Law violations,” (2024). Hindustan Times

2.     Business Today, “LinkedIn India, Satya Nadella, and others fined for violating beneficial-ownership norms,” (May 2024). Business Today

3.     Economic Times, “RoC penalises Samsung Display Noida for breach of Companies Act norms,” (June 2024). The Economic Times

4.     TaxGuru, “MCA Penalizes Samsung Display Noida Private Limited for Section 90 violation,” (2024). TaxGuru

5.     Press Information Bureau, “DEA amends FEMA (Non-Debt Instruments) Rules, 2019,” (Aug 16, 2024). Press Information Bureau

6.     Shardul Amarchand Mangaldas & Co., “Note on amendments to NDI Rules 2024,” (Aug 2024). Shardul Amarchand Mangaldas & Co

7.     TaxGuru, “2024 FEMA NDI Rules Amendment: Cross-Border Share Swaps,” (Dec 2024). TaxGuru

8.     NDTV, “LinkedIn India, Satya Nadella, 8 others fined for SBO norms violation,” (2024). www.ndtv.com

9.     Fortune India, “Satya Nadella, LinkedIn, 9 others fined ₹27 lakh for breaching SBO norms,” (2024). Fortune India

10.  TaxGuru, “Significance of Significant Beneficial Owners under Companies Act, 2013,” (2023). TaxGuru

11.   TaxGuru, “Significant Beneficial Ownership disclosure requirements under Section 90,” (2025). Tax Robo

Case Citations:

1.     Registrar of Companies v. LinkedIn Technology Information Pvt. Ltd., RoC Order, MCA, 2024 (holding Satya Nadella and Ryan Roslansky as Significant Beneficial Owners under § 90 of the Companies Act, 2013).

2.     Registrar of Companies v. Samsung Display Noida Pvt. Ltd., RoC Order, MCA, 2024 (holding senior executives liable as SBOs despite lack of equity ownership, under § 90 of the Companies Act, 2013).