LinkedIn appeals corporate ministry's order for SBO norms violation

LinkedIn has appealed against the order of the Corporate Affairs ministry that held it in violation of Significant Beneficial Ownership (SBO) norms and penalised Microsoft’s CEO Satya Nadella and LinkedIn’s chief Ryan Roslansky, among seven others. 

 

A LinkedIn India spokesperson confirmed the development in response to an email query by Business Standard. 

 

On May 22, the Ministry of Corporate Affairs (MCA) imposed a fine of Rs 27.1 lakh on Nadella and eight other executives for violating SBO norms related to LinkedIn Technology Information, according to an order by RoC for Delhi and Haryana. 

 

Company law experts said if Microsoft CEO can be deemed a significant beneficial owner, then by that logic, several global CEOs would need to declare themselves as significant beneficial owners.

 

The appeal has been filed in the Regional Director office, which supervises the functioning of RoC.

 

“The outcome of appeal in the LinkedIn SBO matter is something which is keenly watched. The order may settle some very serious questions in connection with determination of SBO related to control and significant influence. An adverse order may see LinkedIn moving to the high court,” said Ankit Singhi, partner, Corporate Professionals. 

 

Section 90 of the Companies Act deals with identification of individuals who own beneficial interest over the company. It requires companies to disclose SBO details.

 

In its order, RoC said that the law does not provide that an SBO must necessarily take part in the day-to-day operations of a company or have direct control over the affairs of a company.

 

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

 

Company law experts feel the MCA is looking at terms like 'control' and 'significant influence' from a much wider perspective. 

 

The intent of the law is to identify individuals or groups of individuals who can influence companies without directly owning shares. 

 

RoC, in its 63-page order, said the company and its officers failed to send a notice, mandatorily required to be sent] according to rule 2A (2) of the Companies (Significant Beneficial Owners) Rules: “LinkedIn in its own website has itself disclosed that Mr. Ryan Roslansky reports to Mr. Satya Nadella and is part of Microsoft's senior leadership team…Mr Satya Nadella is also a significant beneficial owner [SBO] of the subject company under section 90.” 

 

The company, in response to RoC, said Roslansky and Nadella cannot be regarded as significant beneficial owners of LinkedIn India as they execute their responsibilities as professionals serving at the pleasure of their respective board 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 signify the lack of authority of such persons over LinkedIn India which is the cornerstone of determining significant beneficial ownership,” the company told the RoC.

 

The registrar office, however, had not found the responses of the company satisfactory and said the company ignores the fact the SBO is identified through the test of control or significant influence.