The Ministry of Corporate Affairs (MCA) has issued a crucial Notification dated 27th October 2023, impacting private companies’ shareholding structure. This notification outlines the mandatory dematerialization of securities for all private companies, excluding small companies, as per Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
1. Applicability of Rule 9B:
This amendment applies to all private companies, except small companies and government companies.
Small companies, defined under Section 2(85) of the Act, are those with paid-up share capital not exceeding Rs. 4 crores and turnover not exceeding Rs. 40 crores.
However, holding companies, subsidiary companies, Section 8 registered companies, or those governed by any special Act are not considered small companies and must comply with the dematerialization norms.
2. Timeline for Compliance:
Private companies must ensure the conversion of all existing physical shares into demat form by September 30th, 2024.
If a private company, as of the last day of a financial year ending on or after March 31st 2023, is not a small company based on audited financial statements, it must comply with this rule within eighteen (18) months of the closure of such financial year.
3. Consequences of Non-Compliance:
Failure to dematerialize shares by the specified deadline will result in the following consequences:
- Private companies cannot issue securities after September 30th, 2024.
- Shareholders intending to transfer their shares cannot do so in physical form after September 30th, 2024.
4. ROC Compliances:
Private companies are required to file Form PAS-6 with the Registrar of Companies (ROC) within sixty days from the conclusion of each half-year.
The filing deadline for the period from April to September is 29th November, and for the period from October to March, it is 30th May.
5. Penalties:
While there is no specific penalty mentioned under Section for non-compliance, the penalty as per Section 450 of the Act will be applicable.
According to Section 450, companies and every officer in default will be liable to a penalty of Rs. 10,000. In the case of continuing contravention, an additional penalty of Rs. 1,000 per day, after the first day, will be imposed, subject to a maximum of Rs. 2,50,000 for a company and Rs. 50,000 for an officer in default or any other person.
Conclusion:
Private companies must heed the MCA notification’s call for dematerialization compliance, understanding the applicability, timelines, and potential consequences. ROC compliances are vital, and adherence is crucial to avoid penalties outlined in Section 450.
If you have any queries or concerns regarding this compliance, please feel free to reach out to me at csrohitkhatri@gmail.com
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