The Ministry of Corporate Affairs ('MCA') imposed penalties against a U.S.-based company, Leixir Resources Private Limited ('Leixir Resources'), registered in Haryana, for failing to disclose complete details of any Significant Beneficial Ownership ('SBO'). Along with Leixir Resources, six other entities were slapped with a cumulative penalty of INR 18 lakhs.
Background
The Registrar of Companies ('RoC'), NCT of Delhi and Haryana, sent a show-cause notice which sought SBO details from Leixir Resources under section 209 of the Companies Act 2013 ('the Act, 2013'), to ascertain the compliance of section 90 of the Act which mandates registration of SBO in a company. In response to said notice, the company declared 'there is no individual who holds any right or entitlement indirectly and can be considered to be Significant Beneficial Owner'.
The denial of the compliance requirement itself was further justified by disclosing facts regarding the ultimate holding company of Leixir Resources, which was part of a Pooled Investment Vehicle ('PIV'), Comvest Investment Partners V LP, and another entity, Comvest Investment Partners V-A LP. Moreover, the mandatory requirement of sending a notice in form BEN-4 as per rule 2A (2) of the Companies (Significant Beneficial Owners) Rules, 2018 ('the Rules, 2018') was not complied with.
Issues
The law relating to Limited Partnerships ('LP') in Delaware1, where the company is based, states that an LP must consist of at least two individuals—a general partner and a limited partner. Under the provisions, the onus to manage the affairs of LP falls on the general partner, and its liability is unlimited. This is why the appointment of any body corporate generally rests with general partners to limit the overall liability of LP. Investment Managers of a PIV are appointed as body corporate by general partners.
Due to the failure to properly disclose stipulated information, the company was necessitated to state the names and percentage of holding of Limited Partners and General Partners of all concerned companies. The major point of determination, in this case, was the fact that who could be designated as SBO in a company when a PIV controls the company. The appointment of the employees of Comvest as directors of the subject company would be dealt with as part of the case.
Analysis and Adjudication
Applying the principle of purposive construction, the Court relied on the Indian Social Action Forum (INSAF) v. Union of India2. It reiterated that 'the provisions of the statute have to be interpreted to give the words a plain and natural meaning and the endeavour of the Court should be to interpret the provisions of a statute to promote the purpose of the Act.'
As far as identifying the company's SBO, the Court deduced that, in relation to the subject, Mr. Michael Falk is liable to a penalty under section 90(10) of the Act 2013 due to failing to report under section 90(1). The company earlier claimed that he is the CEO of Comvest Advisors, and a committee collectively makes the investment decisions.
Information submitted to the Court by the company was found contradictory by Comvest Advisors LLC to the United States Securities and Exchange Commission ('SEC'). Only when the company was shown relevant SEC findings did they admit Mr. Falk's portfolio to the establishment. Comvest Advisors LLC is listed as principally owned and controlled by Mr. Falk through Comvest Group Holdings LP. It was evident that he was an SBO on grounds mentioned in Rule 2(1)(h)(iv) of the Rules 2018. For the failure to take necessary steps per section 90(4A) of the Act to identify SBO, Leixir Resources and its officers were collectively held liable under section 90(11). The Officers should have sent a notice, which is already mandated per rule 2A of the Rules 2018.
Footnotes
1 Under the Delaware Uniform Partnership Act 2000
2 Civil Appeal No.1510 of 2020
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