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Samsung Display Noida penalized Section 90(4A) violation by MCA

The Ministry of Corporate Affairs (MCA) issued an order adjudicating penalties under Section 454 of the Companies Act, 2013, against Samsung Display Noida Private Limited (SDNPL) and its directors for violating Section 90 of the Act. The hearings took place on April 25, 2024, and May 10, 2024. Represented by Advocate Mohit Maheswari, SDNPL failed to comply with the significant beneficial ownership (SBO) declaration requirements.

Company Incorporation and Shareholding: SDNPL, incorporated on July 5, 2019, is a wholly owned subsidiary of Samsung Display Co. Ltd. (SDC), Korea. The shareholding structure as per the latest filings is:

  • Samsung Display Co. Ltd, Korea: 99.99%
  • Jin Suk Lee: Negligible (as a nominee of SDC, Korea)

Legal and Compliance Issues: Upon examination, the Registrar of Companies (RoC) found that SDNPL had not filed e-form BEN-2, required for declaring SBO. SDNPL’s response, based on self-evaluation, claimed no individual met the SBO criteria due to the dispersed ownership in SDC, Korea and its ultimate parent company, Samsung Electronics Co., Ltd. (SEC), Korea, both listed on the Korean Stock Exchange. SDNPL argued that no single individual or group held a 10% or greater beneficial interest or control in the reporting company through the holding and ultimate holding companies.

Registrar’s Observations: The RoC found that SDNPL’s evaluation did not consider the nature of indirect holdings or the exercise of control through distributable dividends and significant influence. The RoC issued a Show Cause Notice (SCN) on April 15, 2024, to SDNPL, its directors, and key management personnel (KMP), highlighting non-compliance with Section 90 and the SBO Rules.

Response to SCN and Further Findings: SDNPL’s response reiterated its earlier stance, emphasizing that no individual or group held significant stakes in either the immediate or ultimate holding companies. However, the RoC found the response unsatisfactory as it failed to address the essence of Section 90, which involves identifying individuals with beneficial interests or significant influence, even indirectly.

Additional Hearings and Evidence: SDNPL was given another hearing date on May 10, 2024, but did not fully comply with the requirements. The RoC sought details about promoters, directors, KMP, and shareholders of major Samsung entities. SDNPL’s responses remained incomplete, particularly regarding the Ultimate Beneficial Owner (UBO) disclosures required for banking purposes.

Public Domain Information: Publicly available information revealed that SEC, Korea, has a controlling interest in SDNPL and 232 subsidiaries, with ownership of voting rights. Late Mr. Lee Kun Hee’s family, including his son Lee Jae-Yong, held significant stakes in SEC, Korea and other entities, indicating indirect control over SDNPL. Despite minority shareholding, Lee Jae-Yong was appointed Executive Chairman of SEC, Korea, highlighting his significant influence over the company.

Conclusion and Penalty: The RoC concluded that SDNPL failed to identify and declare its SBO as required by law. The company did not take necessary steps to identify individuals exercising significant control or influence, directly or indirectly. Consequently, the default under Section 90 and the SBO Rules was established, leading to penalties for SDNPL and its officers.

Penalty Calculation and Final Order: The penalty calculation considered the period from the decriminalization of the default on December 21, 2020, to the issuance of the SCN on April 15, 2024, totaling 1212 days. The order emphasized the need for transparency in corporate ownership and compliance with statutory requirements to ensure accountability and prevent undue influence in corporate governance. Taxguru

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