In a groundbreaking development, the Ministry of Corporate Affairs (MCA) issued a Notification on October 27, 2023, reshaping the landscape of securities issuance and management by private companies in India. The Notification mandates private companies (excluding small companies) to issue securities exclusively in dematerialized form and facilitate the dematerialization of all existing securities within 18 months from the conclusion of the financial year ending on or after March 31, 2023. The directive underscores the urgency for wholly owned subsidiaries (WOS) and foreign companies to swiftly comply with the new requirements.
Implications and ISIN Requirement: A significant implication is the necessity for WOS of foreign companies in India to obtain an International Securities Identification Number (ISIN). Additionally, foreign companies are obligated to initiate the dematerialization process by opening dematerialization accounts with a Depository Participant (DP). ISIN, an internationally recognized code, uniquely identifies securities, facilitating electronic trading and settlement globally.
Steps for Obtaining ISIN by WOS:
1. Identify a Registrar and Transfer Agent (RTA): Crucial for WOS looking to dematerialize securities, RTA assists in obtaining ISIN from depositories such as CDSL or NSDL. WOS collaborates with RTA to prepare necessary documentation.
2. Submission of Information/Documentation with RTA and Verification: WOS submits various documents to RTA, including certificates, resolutions, undertakings, and details of securities. RTA meticulously verifies these documents for compliance and appropriateness.
3. Payment and Document Processing: After document verification, WOS pays one-time joining fees to CDSL or NSDL. The depository generates the Master Creation Form and Tripartite Agreement. WOS obtains stamp papers, executes documents, and submits them to RTA for further processing.
4. ISIN Issuance: Upon successful document submission and verification, regulatory authorities grant approval for ISIN issuance. Each category of security planned for dematerialization is allocated a distinct ISIN, crucial for tracking and managing securities within the regulatory framework.
Steps for Opening Demat Account by Foreign Company:
1. Identify a Depository Participant (DP): Essential for foreign companies looking to open a demat account, DP acts as an intermediary between the foreign company and depositories (NSDL or CDSL), facilitating a smooth transition from physical to electronic securities.
2. Submission of Information/Documentation with DP and Verification: Foreign companies submit various documents to DP, including demat and KYC account opening forms, details of ISIN of WOS, and notarized copies of corporate documents. DP meticulously verifies these documents to ensure regulatory compliance.
3. Payment and Account Opening: After successful verification, the foreign company pays one-time joining fees to DP. Upon completion of the fee payment process, DP officially opens the demat account. The foreign company can then engage in operational activities such as dematerializing securities and participating in corporate actions.
4. Annual Custody Fees: DP levies annual custody fees on the foreign company based on the amount of paid-up share capital for ongoing services related to the demat account.
Conclusion: Establishing a demat account for foreign companies in India requires a methodical approach, strict adherence to regulatory frameworks, and precise documentation. This article aims to illuminate pivotal steps for a seamless and compliant entry into the Indian securities market, empowering foreign companies to navigate intricacies and capitalize on opportunities within India’s dynamic financial ecosystem. Adhering to outlined procedures enables foreign companies to confidently initiate the opening of a demat account, facilitating electronic holding, transfer of securities, and active engagement in India’s vibrant capital market.
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Hi sir ,
i have a doubt regarding the bank details to be given for creation of demat for a foreign company. should we give the company bank details or Any authorised signatory bank details