The Ministry of Corporate Affairs in its drive to enhance transparency, investor protection and corporate governance, has notified Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018 on 10 September 2018 effective from 02nd October, 2018 i.e. Issue of securities in dematerialized form by unlisted public companies (herein after referred as ‘PUC’).

Author has already discussed this notification in his article titled Impact of “Demetralization of Securities” of Public Limited Company

A. SHORT SUMMARY:

The purpose behind this editorial, to understand the concept of Demat of Securities for Public Limited Companies, effect of Demat on Compliances of Public Limited Companies, Responsibility/ duty of directors, KMP, promoters towards Demat of securities, Impact on Shareholders of Demat of Securities. To discuss following frequent questions:

A. Whether it is mandatory for Public Limited Companies to Convert Physical shares into Demat?

B. What are the consequences if Public Company fails to apply ISIN No. or don’t convert shares in Demat?

C. Whether there was / is any due date for conversion of shares into DEMAT? ETC.

D. Whether it is mandatory for public Limited Companies to file Reconciliation Share Capital Audit Report?

FIRST STEP:

As per Rule 9A (3) every holder of security of PUC can transfer its shares on or after 02nd October, 2018 only in Demat Form. For conversion of shares into Demat shareholders required ISIN No. of Company.

As per Companies Act, 2013 Rule 9A it is responsibility of company to give opportunity to its shareholders to convert their shares into Demat. Therefore, all the PUC required applying for ISIN on or before 2nd October, 2018.

Even as per Rule 9A (4) Every unlisted public company shall facilitate dematerialization of all its existing securities by making necessary application to a depository as defined in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996 and shall secure International security Identification Number (ISIN) for each type of security and shall in-form all its existing security holders about such facility.

One can opine that:

It is mandatory for all PUC to apply for ISIN no. to comply with provisions of Rule 9A. Irrespective of the fact whether shareholders want to transfer its shares or not. It is responsibility of Company to facilitate dematerialization to share holders.

Consequences:

As there is no penalty/ fine prescribed under rule 9A therefore, as per section 450 of Companies Act, if no penalty/ fine prescribed in any Rule or Section then penalty / fine shall be as per Section 450 i.e. The COMPANY and EVERY OFFICER of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

SECOND STEP:

As per first step it is concluded that it is mandatory for Public Limited Companies to apply for ISIN. In second step what are the compliances on Public Limited Company after allocation of ISIN:

As per Rule 9A(8) The audit report provided under regulation 55A of the securities and Exchange Board of India (Depositories and participants) Regulations, 1996 shall be submitted by the unlisted public company on a half-yearly basis to the Registrar under whose jurisdiction the registered office of the company is situated.

B. Legislative Requirement (Regulation 55A):

Under provision of Regulation 55A of the SEBI (Depositories and Participants) Regulations, 1996, listed companies are required to submit

  • Reconciliation of Share Capital Audit Report on a Half Yearly basis to the stock exchanges audited by a qualified chartered accountant or a practicing company secretary, for the purpose of reconciliation of share capital held in depositories and in physical form with the issued / listed capital.
  • The Reconciliation of Share Capital Audit Report is required to be submitted to the Registrar of Companies within 30 days from the end of the Half Year.”

One can opine that:

First half year for PUC shall be closed on 31st March, 2019, therefore every PUC mandatorily required to file Reconciliation of Share Capital Audit Report with Roc on or before 30th April, 2019. (Irrespective of fact shareholders converted shares in Demat or Not)

However, in Reconciliation of Share Capital Audit Report Company have to give details of Shares in Physical as well as shares in Demat. Therefore if shareholders have not converted their shares into Demat then report will required to mention details of shares in physical

Consequences:

As there is no penalty/ fine prescribed under rule 9A therefore, as per section 450 of Companies Act, if no penalty/ fine prescribed in any Rule or Section then penalty / fine shall be as per Section 450 i.e.

The COMPANY and EVERY OFFICER of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

THIRD STEP:

In third step further compliances on Public Limited Company after allocation of ISIN:

A. Make timely payment of Fees (admission as well as annual).

B. Maintenance of Security deposit of 2 years’ Fees, as per agreement executed with the followings:

    • Depository;
    • Registrar to an issue;
    • Share Transfer Agent

C. Comply with the regulations, guidelines or circulars, if any issued by the Securities and Exchange Board or Depository from time to time.

MOST IMPORTANT QUESTION – IMPACTS

MOST IMPORTANT QUESTION – IMPACTS

Therefore, one can opine that

  • In case Company fails to apply for ISIN or fails to file half yearly audit company is liable for consequences under Section 450.
  • If shareholders fails to convert shares in Demat they are liable for consequences i.e. not able to transfer of shares not able to subscribe shares.

QUICK BITES

A. Whether Company required applying separate ISIN for each type of Security?

Yes, PUC required applying for separate ISIN for each type of Security.

B. Share holders don’t intent to transfer shares Or Company doesn’t intent to issue new Securities, still it’s required to apply ISIN and has to file?

 Irrespective of fact whether shareholder intent to convert or not, it is responsibility of Company to apply for ISIN and have to file half year audit Return.

C. What is due date of submission of half yearly Audit Report with ROC?

Due date of submission of Reconciliation of Share Capital Audit Report is within 30 days of closure of Half Year i.e. 30th April, 2019 for the half year ended 31.03.2019.

D. What is due date of submission of half yearly Audit Report with ROC?

Due date of submission of Reconciliation of Share Capital Audit Report is within 30 days of closure of Half Year i.e. 30th April, 2019 for the half year ended 31.03.2019.

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One Comment

  1. Yogesh Banthia says:

    Sir,
    We have a unlisted public company. In march 2019 we held a meeting and resolved to convert our PLC to Private Ltd Co.
    Do we still have to get the shares Dematerliased and take the ISIN no and pay the fines / penalties for not taking the ISIN no.
    Kindly reply. Thanking you
    Yogesh Banthia

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