Today we have covered the most crucial topic for Unslisted Public Company, i.e COMPULSORY DE-MATERIALIZATION OF SECURITIES OF THE COMPANY.

Since there was an amendment in the LODR in relation to RESTRICTION ON TRANSFER OF SECURITIES IN PHYSICAL FORM by SEBI w.e.f 05.12.2018, subject to certain exemptions, it was seems that MCA shall also mandate on Companies to issue their shares in Demat Form only which shall come into force at the earliest.

Now here the MCA vide its notification dated 10th September 2018 has notified the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018. which shall be effective on 02.10.2018

1. Applicability of new provisions related to Compulsory Demat of Securities of Company

The amendment is applicable on Unlisted Public Companies.

A new rule i.e. Rule 9A has inserted into the existing Companies (Prospectus and Allotment of Securities) Rules, 2014.

(1) Every unlisted public company shall

(a) issue the securities only in dematerialised form; and

(b) facilitate dematerialisation of all its existing securities

as per Depository Act, 1996 and its Regulations.

2. Meaning of the Word ‘securities’

A word securities marked in the above rule which is more important to discuss

As per Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) which provides the following:

[h] “securities” include-

(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

(ia) derivative;

(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;

(ic)security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(id) units or any other such instrument issued to the investors under any mutual fund scheme;

(ii) Government securities;

(iia) such other instruments as may be declared by the Central Government to be securities; and

(iii) rights or interest in securities;

3. Holding Of Promoters, Directors, KMP In Demat Form Only

(2) Every Unlisted Public Companies making any offer for issue of:

  • ANY SECURITIES or
  • BUY BACK OF SECURITIES or
  • ISSUE OF BONUS SHARES or
  • RIGHTS OFFER

shall ensure that before making such an offer, entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised in accordance with provisions of the Depositories Act 1996 and regulations made there under.

4. Responsibilities of the Unlisted Public Company

i. Facilitate Dematerialisation Of All Its Existing Securities: Every unlisted public company shall facilitate dematerialisation 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.

ii. Creation Of ISIN: Creation of ISIN thorough any Depository viz NSDL / CDSL

iii. Intimation To Security Holders:Inform all its existing security holders about such facility.

iv. Payment Of Fees: Company shall ensure that it makes timely payment of fees (admission as well as annual) to the depository and registrar to an issue and share transfer agent in accordance with the agreement executed between the parties.

v. Maintenance Of Security Deposit:Company shall ensure that it maintain security deposit, at all times, of not less than two years, fees with the depository and registrar to an issue and share transfer agent in such form as may be agreed between the parties;

vi. Compliance Required:Company shall comply with the regulations or directions or guidelines or circulars, if any, issued by the Securities and Exchange Board or Depository from time to time with respect to dematerialisation of shares of unlisted public companies and matters incidental or related thereto.

vii. Penalty For Non-Compliance:If the Company has defaulted in relation to Point no. 4, 5, 6 as ,mentioned above, then it shall not make an offer of any securities or buyback its securities or issue any bonus or right shares till the payments to depositories or registrar to an issue and share transfer agent are made.

5. Other Compliances- Audit Report

Company shall be required to submit an audit report with ROC of its jurisdiction on a half yearly basis as provided under Regulation 55A of the SEBI (Depositories and Participants) Regulations, 1996.

6. Practical Aspects Involved On The Part Of Company

CREATION OF ISIN:

In order to comply with the provision of the Rule 9A, Company is required to approach to any of the Depository through Share Transfer Agent in order to activate their ISIN which normally takes 12-15 Days time period.

What is ISIN?

The International Securities Identification Number (ISIN) is a code that uniquely identifies a specific securities issue. The organization that allocates ISINs in any particular country is the country’s respective National Numbering Agency (NNA).

Elements of the ISIN Number:

An ISIN identifier code has 12 alphanumeric characters and is structured to include:

  1. the country in which the issuing company is headquartered
  2. the specific security identification number
  3. a final character that acts as a security check to deter fraud or misuse

The first two digits are reserved for the security’s country of origin or head office of the issuing company. The second grouping, which is nine characters long, is reserved for the security’s unique identifying number. The final digit, known as a “check digit”, assures the code’s authenticity and lowers the frequency of errors or misuse.

The middle nine digits of the ISIN system number is administered by the local Country’s numbering agency, which is called the CUSIP Service Bureau in the United States.

This office was created to improve the numbering system for securities by developing a national standard for the financial industry. The CUSIP Service Bureau was first established in 1964 and continues to enforce the numbering system through a board of trustees

You may get the shares of your Company into Demat by creation of ISIN in simple and easy way.

7. List of documents required to be submitted by the Issuers at the time of joining NSDL

  1. Letter of intent cum Master Creation Form
  2. Certified true copies of Audited Annual Reports for last two years.
  3. Certified true copy of Memorandum of Association / Articles of Association.
  4. Net Worth certificate from a Chartered Accountant.
  5. Undertaking from company in the enclosed format (for private limited companies).
  6. Form PAS-3 ROC for all issues if any after the last balance sheet date. Book Value Certificate after the date of last allotment
  7. Form SH-7 if there is any variation in face value of shares or reduction in capital after the last balance sheet date
  8. If the company is already admitted in CDSL, the ISIN activation letter from CDSL to be submitted.
  9. In case of unlisted company, NSDL is charging fee of Rs.30000 + GST for activation.

Hope the information will assist you in your Professional endeavours. In case of any query/ information, please do not hesitate to write back to us.

(Author can be reached at Email: [email protected] or at 7838204665 (Call or What’s App) for any professional assistance or in case of doubt )

Author Bio

Qualification: CS
Company: SPML India Limited
Location: Delhi, New Delhi, IN
Member Since: 29 Aug 2017 | Total Posts: 5
CS Ravi Garg is an Associate Member of Institute of Companies Secretaries of India having good experience in legal and secretarial matters. He is having 4+ years’ experience in handling Compliance management, handling projects and Investor Grievances related to Public Issues, IPO’s, ISIN Creatio View Full Profile

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6 Comments

  1. Subhrat says:

    please help me for below mentioned query how can resolved the query

    Dear Sir/ Madam,

    This is to inform you that in terms of Rule 10 of the Companies (Registration Offices and Fees) Rules, 2014, the
    above-cited Form IEPF-5 dated 09/07/2018 filed by HDFC BANK LIMITED vide SRN ………….has been examined and marked
    as Sent for resubmission with the following remarks-

    You are requested to rectify the following discrepancy by resubmitting the IEPF-5 Form:
    1. Mention correct Demat a/c
    no. In Point 7 of Form
    2. Provide affidavit for mismatch of address with excel sheet
    3. Provide Original New Share
    certificate after sub division for 500 shares of Rs. 2/- stating holding of the claimant in the name of Co. for
    which the claim relates
    4. Provide copy of Resolution from Company regarding sub division of shares
    The form may be
    resubmitted after correcting it and with all documents as available on iepf.gov.in through Co. after verification by
    nodal officer of the Co.

  2. Ravi Garg says:

    As marked in the Article, NSDL vide Circular No.: NSDL/CIR/II/26/2018, date: September 25, 2018 reduce the Joining Fees to 15000.
    And New Slab introduce for Annual Custody Fee of
    Rs 5,000 for nominal value of securities admitted upto Rs. 2.5 crore

    For any issue ping me

  3. Ravi Garg says:

    As per Regulation 55A, Report is required to be Submitted on half-year basis. Hence to be submit by 31st Oct for half year ended 30th September and by 30th April for half year ended 31st March

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