Companies Act 2013 Section 172

Companies Act 2013 Section 172 addresses the disclosure requirements related to beneficial ownership in companies. It mandates companies to identify and disclose individuals who ultimately own or control the company, enhancing transparency in corporate ownership structures.

This section is crucial for directors, shareholders, professionals, and companies to understand as it helps prevent misuse of corporate entities for unlawful activities. Compliance with this provision strengthens corporate governance and aligns with regulatory expectations.

Companies Act Section 172 – Exact Provision

This section requires companies to maintain a register of beneficial owners holding at least 25% beneficial interest. It ensures companies actively identify and update information about individuals who ultimately control or benefit from the company’s shares or voting rights.

• Mandates maintaining a beneficial ownership register.

• Applies to individuals holding 25% or more beneficial interest.

• Requires reasonable steps to identify beneficial owners.

• Ensures continuous updating of ownership information.

Explanation of Companies Act Section 172

Section 172 mandates disclosure and maintenance of beneficial ownership information to prevent concealment of true ownership.

• Companies must maintain a register of beneficial owners.

• Applies to all companies registered in India.

• Directors and officers are responsible for compliance.

• Beneficial owner means a person with 25% or more ownership or control.

• Companies must take reasonable steps to identify such owners.

• Failure to disclose is prohibited and subject to penalties.

Purpose and Rationale of Companies Act Section 172

This section aims to strengthen corporate governance by promoting transparency in ownership and preventing misuse of companies for illegal purposes.

• Enhances transparency of ultimate ownership.

• Protects shareholders and stakeholders from hidden control.

• Supports regulatory and law enforcement agencies.

• Prevents fraud, money laundering, and tax evasion.

When Companies Act Section 172 Applies

Section 172 applies to all companies regardless of size but focuses on identifying individuals with significant ownership or control.

• Applicable to all Indian companies.

• Triggers when ownership crosses 25% beneficial interest.

• Requires ongoing updates on ownership changes.

• Exemptions may apply to certain government-owned companies.

Legal Effect of Companies Act Section 172

This provision creates a legal duty for companies to maintain accurate records of beneficial ownership. It restricts concealment and mandates disclosure to regulators.

Non-compliance can lead to penalties and impact corporate credibility. The section interacts with MCA rules requiring filings and disclosures related to ownership.

• Creates mandatory disclosure and record-keeping duties.

• Impacts shareholding transparency and compliance filings.

• Penalties for failure to maintain or disclose information.

Nature of Compliance or Obligation under Companies Act Section 172

Compliance is mandatory and ongoing. Companies must regularly update the beneficial ownership register and ensure accuracy.

Directors and officers hold responsibility for compliance, impacting internal governance and audit processes.

• Mandatory and continuous compliance obligation.

• Responsibility lies with company directors and officers.

• Integral to internal governance and transparency.

Stage of Corporate Action Where Section Applies

The section applies at multiple stages including incorporation, share allotment, and ongoing ownership changes.

• During incorporation and initial share issuance.

• When shares are transferred or ownership changes.

• Ongoing maintenance of beneficial ownership register.

• At the time of annual filings and disclosures.

Penalties and Consequences under Companies Act Section 172

Failure to comply with Section 172 can result in monetary fines and other regulatory actions. Persistent non-compliance may attract higher penalties.

• Monetary fines for non-maintenance or non-disclosure.

• Possible prosecution for willful concealment.

• Disqualification of directors in severe cases.

• Additional fees and remedial directions by regulators.

Example of Companies Act Section 172 in Practical Use

Company X issued shares to an individual holding 30% beneficial interest but failed to update the beneficial ownership register. Upon MCA inspection, the company was directed to update records and fined for non-compliance. Director X ensured corrective measures and implemented internal controls to prevent recurrence.

• Shows importance of timely updating beneficial ownership.

• Highlights director’s role in compliance and governance.

Historical Background of Companies Act Section 172

Section 172 was introduced in the 2013 Act to replace earlier provisions lacking clarity on beneficial ownership. It reflects global trends to enhance transparency and combat corporate misuse.

• Replaced ambiguous provisions from Companies Act, 1956.

• Introduced to align with international anti-money laundering standards.

• Amended periodically to strengthen disclosure norms.

Modern Relevance of Companies Act Section 172

In 2026, Section 172 remains vital for digital compliance and governance reforms. The MCA portal facilitates e-filing of beneficial ownership details, supporting transparency and ESG compliance.

• Enables digital maintenance and filing of ownership data.

• Supports governance reforms and regulatory oversight.

• Critical for anti-fraud and ESG compliance initiatives.

Related Sections

• Companies Act Section 2 – Definitions relevant to corporate entities.

• Companies Act Section 89 – Register of members and beneficial ownership.

• Companies Act Section 90 – Register of significant beneficial owners.

• Companies Act Section 166 – Duties of directors.

• IPC Section 420 – Cheating and dishonesty.

• SEBI Act Section 11 – Regulatory oversight for listed companies.

Case References under Companies Act Section 172

No landmark case directly interprets this section as of 2026.

Key Facts Summary for Companies Act Section 172

• Section: 172

• Title: Disclosure of Beneficial Ownership

• Category: Governance, Compliance

• Applies To: All Indian companies

• Compliance Nature: Mandatory, ongoing

• Penalties: Monetary fines, possible prosecution

• Related Filings: MCA beneficial ownership register updates

Conclusion on Companies Act Section 172

Section 172 is a cornerstone of corporate transparency in India. It ensures companies disclose the individuals who truly own or control them, preventing misuse of corporate structures.

Understanding and complying with this provision is essential for directors and companies to maintain trust, meet regulatory requirements, and support good governance practices in today’s business environment.

FAQs on Companies Act Section 172

What is a beneficial owner under Section 172?

A beneficial owner is a person who ultimately owns or controls at least 25% of the company’s shares or voting rights, either directly or indirectly.

Who must maintain the beneficial ownership register?

Every Indian company is required to maintain and update the register of beneficial owners as per Section 172.

What happens if a company fails to disclose beneficial ownership?

Non-disclosure can lead to monetary penalties, prosecution, and regulatory actions against the company and its officers.

Is the beneficial ownership register accessible to the public?

The register is maintained by the company and filed with the MCA but is not publicly accessible to protect privacy.

How often must the beneficial ownership information be updated?

Companies must update the register promptly whenever there is a change in beneficial ownership or control.