Satya Nadella, LinkedIn India Fined By Corporate Affairs Ministry: All You Need To Know

The Ministry of Corporate Affairs imposed fines on LinkedIn India, which is owned by Microsoft Corp., as well as on Satya Nadella and eight other individuals on Wednesday. These fines were for violating the significant beneficial owner norms under the companies law.

The order states that both Satya Nadella, chief executive officer of Microsoft and Ryan Roslansky, chief executive officer of LinkedIn, are considered significant beneficial owners of the company, but failed to report this as required by law. 

Roslansky was appointed as the global CEO of LinkedIn Corp. on June 1, 2020, and started reporting to Nadella. The period of violation is considered from July 1, 2020, to February 15, 2024, when the Show Cause Notice was issued.

In the context of beneficial ownership through the test of financial control, the ministry found that the situation underscores the significant financial control exercised by Microsoft over its subsidiary, LinkedIn.

During a board meeting of the subject company in Singapore on November 30, 2016, a resolution was passed that authorised certain senior financial officers from Microsoft to establish, operate, and close bank accounts for the company. These individuals were granted authority to take any necessary actions related to the company’s banking operations, provided the resolution became effective only after the merger of LinkedIn with Liberty Merger Sub Inc., a subsidiary of Microsoft. 

This resolution included specific stipulations about who could authorise financial transactions, requiring two authorised signers for amounts of $10,000 or more, demonstrating Microsoft's stringent control over financial matters.

A subsequent board meeting on May 2, 2022, modified this resolution to appoint managing, operating, and bank guarantee signatories. Despite this modification, the new resolution explicitly stated that it did not supersede previous authorisations related to the CFO or treasurer of Microsoft, ensuring their overarching authority remained intact. 

This indicates a continued and significant level of financial control by Microsoft, as evidenced by the financial statements of the subject company. Transactions between the subject company and other group entities further illustrate this control, suggesting these financial arrangements are under Microsoft's direction, the ministry noted in its order.

The argument presented by the subject company, that this arrangement is a measure for fraud prevention, is juxtaposed with the observation that it effectively makes the subject company's board subservient to Microsoft's decisions. 

The individuals from Microsoft, who have been appointed as signatories, are not accountable to the subject company’s board, reinforcing the notion of financial control by Microsoft.

According to Lalit Kumar, partner at JSA Advocates & Solicitors, while the SBO rules typically rely on tests related to share capital, voting rights, and dividend rights, the Registrar of Companies in this instance has applied a subjective test of "control" and "significant influence."

This interpretation has led to global leaders being designated as SBOs and fined for non-disclosure, he said.

Nadella, identified as a significant beneficial owner, has been penalised an amount of Rs 2 lakh for failing to report his status as such. Roslansky faces a penalty of Rs 2 lakh for the same infraction. 

LinkedIn Ireland Unlimited Co., identified as a beneficial owner, has also been fined Rs 2 lakh.

Other individuals on whom fines were imposed are Keith Ranger Dolliver, Benjamin Owen Orndorff, Michelle Katty Leung, Lisa Emiko Sato, Ashutosh Gupta, Mark Leonard Nadres Legaspi, and Henry Chining Fong.

Under foreign laws, global leaders wouldn't usually be seen as SBOs in such cases, according to Kumar. This issue may affect numerous large corporations in India. It's vital to correctly interpret control and significant influence in determining SBO status.