In a major step to keep track of transactions of Corporates and making the things easier and transparent for the Shareholders, the Ministry of Corporate Affairs (MCA) has notified the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018 by inserting Rule 9 (A) on 10th September, 2018 making the Dematerialisation of Securities of an Unlisted Public company madatory. The said Amendment Rules shall come in Force on 02nd October, 2018.

Understanding the Term “Dematerialisation”:

Dematerialisation is the process of converting Physical Securities into electronic format. It should be related to Listing of securities. A Shareholder intending to dematerialise its securities needs to open a Demat account with Depository Participant. Investor Deface and surrenders his Physical Securities and in turn gets Electronic Shares in his Demat Account.

Dematerialisation of Securities Shares

Major Highlights of Amendments:

As per Rule 9 (A) (1), an Unlisted Public Company is required to issue the securities only in dematerialised form and facilitate Dematerialisation of all its existing Securities as per provisions of the Depositories Act, 1996 and regulations made there-under.

Further, every Unlisted Company has to ensure that entire holding of securities of its Promoters, Directors, Key Managerial personnel is in dematerialised Form, at the time of making an offer for issue or buyback of securities or issue of bonus shares or Rights. Rule 9 (A) (2)

Rule 3 of the amendment specifies that every holder of Securities who intends to transfer securities or who intends to subscribe to any securities of an unlisted public company has to make sure that all their existing Securities are held in dematerialised form before such transfer or subscription to the Securities;

Rules 4 of the amendment Rules mandates every Unlisted Public Company to facilitate dematerialisation of all its existing securities by making necessary application to a depository and to secure International Security Identification Number (ISIN) for each type of security and to inform all its existing security holders about such facility.

Half-Yearly Audit Report: The Unlisted Public companies are required to submit a half-yearly Audit Report to the ROC as provided under regulation 55A of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 on a Half-yearly basis. (Rules-8)

Rule 5 & 6 requires for the timely fee payment by the Public Company to the Depository and registrar to an issue and Share Transfer Agent and to maintain security deposit of minimum 2 years’ fee and in case default is made in payment of fees then not to issue Shares until the fees is paid.

Note: Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, Author is not responsible for any errors or omissions in the article therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information.

Major benefits of dematerialisation of securities  to unlisted Public companies-

i.  Elimination of risks associated with physical certificates such as loss, theft, mutilation, fraud etc.

ii.  Improving the corporate governance system by increasing transparency and preventing mal-practices such as benami shareholding, back dated issuance of shares, etc.

iii.  Exemption from payment of stamp duty on transfer.

iv.   Ease in transfer, pledge etc. of securities.

(In case of any discussion or discussion/ suggestions, Author can be reached for further details at +91 7982659624 or at kmalegal@outlook.com)

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Location: New Delhi, New Delhi, IN
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12 Comments

  1. sachin says:

    Nidhi Company
    Being a special class of company issuing shares on daily basis unlike of any other public limited company issuing shares occasionally. Its difficult to find a customer having demat account. can any body guide how to take up the issue with the regulator?

  2. Kuldeep soni says:

    How it possible for nidhi company because thare is required for member minimum 10 share of rs 10 it cost 100 and how to open a demate account ? Demate account is expensive for new member .

  3. CHBVSPRASAD says:

    I HAVE HDFC BANK SHARES IN PHYSICAL FORM,
    WHEN I APPLIED FOR DEMATERILIZATION HDFCBANK INFORMED ME TO APPLY FOR IEPF
    AS THE SAME ARE WITH THEM.IHAVE APPLIED
    8 MONTHS BACK STILLIT IS PENDING,TO WHOM
    ICAN REPRESENT THECASE AND GET SOLUTION.

    1. Priyanka Rajora says:

      The above provisions are not applicable to private companies which are not subsidiary of public companies. Hence they may voluntarily adopt pursuant to section 29 of CA 2013 following due provisions of Depositories Act, 1996.

    1. Priyanka Rajora says:

      No form has been prescribed till now. Going through the provisions of section 20 – service of documents with ROC may be followed or they may notify form GNL-2 for such purpose. We await final clarification from MCA.

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