Dematerialisation of Securities by Private Limited Companies [A giant stride to enhance the integrity of Financial Markets]

The Ministry of Corporate Affairs [MCA] has introduced the Rules for dematerialisation of Securities by Non-Small Private Limited Companies. MCA on 27th October, 2023 issued a Notification making an amendment in the Companies [Prospectus and Allotment of Securities] Rules, 2014 (‘PAS Rules, 2014’).

MCA has introduced Rule 9B [Issue of securities in dematerialised form by Private Companies] through the Companies [Prospectus and Allotment of Securities] Second Amendment Rules, 2023.

In this Article, we will discuss various key facets of such Amendment Rule.

Applicable Provisions of the Companies Act, 2013 with relation to Demat of Securities by Private Companies

application provision

“Small Company” means a Company other than a Public Company, –

a) Paid-up Share Capital of which does not exceed Rs.4 Crore or Such higher amount as may be prescribed;

AND

b) Turnover of which does not exceed Rs.40 Crore or such higher amount as may be prescribed.

  • EXEMPTION:

 1. A Holding Company or a Subsidiary Company;

2. A Company registered under Section 8;

3. A Company or Body Corporate governed by any Special Act

Key Facets of Rule 9B the Companies [Prospectus and Allotment of Securities] Second Amendment Rules, 2023

1. Every Non-Small Private Limited Company shall issue its securities only in dematerialized form & Ensure dematerialization of all its existing securities with effect from 30th September, 2024;
2. ✔  After 30th September, 2024, the Company shall ensure that the entire holding of Promoters, Directors, Key Managerial Personnel shall be in Demat form;

✔ If such holding is not in Demat Form then the Company will not be able to;

1. Issue Securities;

2. Buy-back Securities;

3. Issue Bonus Shares;

4. Right Issue.

3. If the holding of Shareholders other than Promoters/ Directors/ Key Managerial Personnel is not in Demat form then such Shareholders will not be able to;

1. Transfer or Transmit Shares;

2. Subscribe to any securities of the concerned Private Limited Company.

4. On or before 30th September, 2024, every Non-Small Private Limited Company shall obtain ISIN for each type of Securities and the same shall be communicated to all Shareholders of the Company;
5. Every Non-Small Private Limited Company shall facilitate dematerialization of all its existing Securities by making necessary applications to a depository as defined in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996;
6. It is important to note that after 30th September, 2024, every Non-Small Private Limited Company shall file E-Form PAS-6 with the Registrar of Companies (ROC) within 60 days from the conclusion of half year irrespective of the fact that whether all shares of the company are in Demat or not;
6.
  • As there is no Penalty/ Fine prescribed under Rule 9, Therefore, if no Penalty/ Fine prescribed in any Rule or Section then penalty / fine shall be as per Section 450 of the Companies Act, 2013;
  • As per Section 450 of the Companies Act, 2013, every Company and every Officer of the Company who is in default or such other person shall be liable to a penalty of Ten Thousand Rupees, and in case of continuing contravention, with a further penalty of One Thousand Rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and Fifty Thousand Rupees in case of an officer who is in default or any other person.

NSDL/ CDSL FEES DETAILS*

PARTICULARS PAID-UP CAPITAL
Upto     2.5 Cr. 2.5 to   5 Cr. 5 Cr. to 10 Cr. 10 Cr. to 20 Cr. Above 20 Cr.
Joining Fees [One Time] (A) 15,000 15,000 15,000 15,000 15,000
Annual Custody Fees# [January 2024 to March 2024] (B) 1,250 2,250 5,625 11,250 18,750
Gross Value (C) [C = A+B] 16,250 17,250 20,625 26,250 33,750
GST@18% (D) 2,925 3,105 3,713 4,725 6,075
Total Amount payable to NSDL/ CDSL (A+B+C+D) 19,175 20,355 24,338 30,975 39,825
 
NSDL/ CDSL SECURITY DEPOSIT
Small Private Limited Company NIL
Non-Small Private Limited Company [+ 18% GST] 5,000 9,000 22,500 45,000 75,000

* Note: Details of Fees has been taken from the official website of CDSL & NSDL.

#Annual Custody Fees has been calculated for the last quarter. For entire year, Calculation shall be done accordingly.

CONCLUSION:

The compulsory dematerialisation of the shares of the Non-Small Private Limited Company overall seems to be the move in the right direction and will lead to a more transparent and efficient system of share transfers, more financial inclusivity, better bankability of the shares and reduction of frauds and cost, time effectiveness for investors, financial institutions and issuer companies alike.

Author Bio

Qualification: CS
Company: Mohit Patel & Associates, Company Secretaries & Trademark Attorney
Location: Mumbai, Maharashtra, India
Member Since: 29 Jul 2019 | Total Posts: 34
Mohit P. Patel is a Member of the Institute of Company Secretaries of India and Trademark Attorney and has done his graduation in Law. He is accomplished and diligent Company Secretary and Trademark Attorney with a strong track record of ensuring legal compliance and protecting intellectual property View Full Profile

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