MCA fines Nadella, LinkedIn India, 8 others for violating SBO norms

The Ministry of Corporate Affairs (MCA) fined Microsoft Chief Satya Nadella and eight other executives Rs 27,10,800 for violating significant beneficial ownership (SBO) norms related to LinkedIn Technology Information, according to an order by the Registrar of Companies (RoC) — Delhi and Haryana.

Company law experts have noted that the company has the option to appeal against the RoC order at the office of the regional director, MCA, or high court.

Section 90 of the Companies Act addresses the identification of individuals who hold beneficial interest in a company, requiring companies to disclose SBO details.

In its 63-page order, the RoC stated that the company and its officers failed to send a notice, as mandatorily required by Rule 2A(2) of the Companies (Significant Beneficial Owners) Rules.  “LinkedIn itself disclosed on its website that Ryan Roslansky reports to Nadella and is part of Microsoft’s senior leadership team… Nadella is also a significant beneficial owner of the subject company under Section 90.”

In response to the RoC, the company said that Roslansky and Nadella cannot be considered significant beneficial owners of LinkedIn India as they fulfil their duties as professionals serving at the pleasure of their respective boards and shareholders.

“If their employment is terminated by the relevant employers, they will not be able to discharge their existing duties over the relevant companies, which would clearly indicate the lack of authority of such persons over LinkedIn India, a cornerstone in determining SBO,” the company told RoC.

However, the registrar’s office found the company’s responses unsatisfactory, saying that the company disregards the fact that significant beneficial owners are identified through the test of control or significant influence.

The company’s reply, according to RoC, revolves around the argument that no individual holds a majority stake in the ultimate holding company (Microsoft Corporation). Thus, the company claims it does not have any SBO.

In its order, RoC said that the law does not require a significant beneficial owner to necessarily participate in the day-to-day operations of a company or have direct control over its affairs.

“It is clear that control, or the right to exercise such control or significant influence indirectly, also amounts to the exercise of control and significant influence,” the RoC concluded.