Ministry of Corporate affairs (MCA) has inserted a whole new compliance for Unlisted Public companies dated 10th September, 2018. The new compliance has been inserted under Rule 9A- ‘Issue of securities in dematerialised form by unlisted public companies’, after the existing rule 9 of The Companies (Prospectus and Allotment of Securities) Rules, 2014, which we will discuss now in thorough.

  • Every unlisted Public company can issue shares only in dematerialised form in accordance with provisions of the Depositories Act, 1996 and regulations made there under
  • Every unlisted Public company shall facilitate the conversion of physical shares into dematerialised form in accordance with provisions of the Depositories Act, 1996 and regulations made there under
  • Every Public company shall ensure to convert entire physical shareholding of its promoters, directors, key managerial personnel into dematerialised form in accordance with provisions of the Depositories Act 1996 and regulations made there before going for any of below given events:-
  • any offer for issue of any securities or
  • buyback of securities or
  • issue of bonus shares or
  • rights offer
  • Every security holder of unlisted public company shall get its shares in dematerialised form, if below given events are acted on and after 2nd October, 2019:
  • If he/she wants to transfer their securities
  • If he/she wants o any securities of an unlisted public company (whether by way of private placement or bonus shares or rights offer)
  • 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 and shall in-form all its existing security holders about such facility.
  • Every unlisted public 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;
  • it maintains 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; and
  • it complies 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;

* If any unlisted public company has defaulted in above points, inspite it has all its securities in demat form, still cannot make 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.

Convert physical shares to the demat form

* This point is applicable from 22nd May, 2019.

* The E-Form PAS-6 shall be filled within sixty (60) days from the date of its deployment on MCA Portal as per General Circular no. 16/2019 dated 28th November, 2019.

  • The grievances, if any, of security holders of unlisted public companies under this rule shall be filed before the Investor Education and protection Fund Authority and shall initiate any action against a depository or participant or registrar to an issue and share transfer agent after prior consultation with the securities and Exchange Board of India (SEBI).
  • Note that this rule shall not apply to:
  • A Nidhi Company
  • A government company
  • A wholly owned subsidiary even if it public company.

Penal Provision:

  • Section 450: If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.
  • Apart from this penalty shall be levied as contravened under that specific provision. Example, securities issued under section 42 i.e. private placement, in this case the penal provision of section 42 shall also be levied along with section 460 of the Companies Act, 2013 read with rules thereunder and so on.

Hence, it seems mandatory to convert the physical securities into dematerialised securities for a unlisted Public company to avoid heavy penalty on the company.

Disclaimer: The above article is takeout of content of rule 9A of The Companies (Prospectus and Allotment of Securities) Rules, 2014. There are other important aspects which the readers are required to go through full provision once, before coming to conclusion. The interpretation is purely based on the existing information upto the 9th December, 2019. Any further amendments in provision may lead to change in its interpretation accordingly. The author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

(The Author is Corporate Consultant and provides varied array of services including Start-ups, secretarial, financial, Intellectual property, taxation, Audit, GST, Book keeping and other ancillary advisory service in Delhi and Chandigarh and can be contacted through email id:- triptishakyacs2017@gmail.com)

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