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 September 10, 2018 making the Dematerialization of Securities of an Unlisted Public company mandatory. The said Amendment Rules shall come in Force on October 02, 2018.

Dematerialization of Shares


 Applicability of the Amendments

Dematerialization is the process of converting Physical Securities into electronic format. It should be related to Listing of securities. A Shareholder intending to dematerialize 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.


A word securities in above amended rule is more important to discuss. Further, as per Section 2(h) of the Securities Contracts (Regulation) Act, 1956 which provides the following;

Securities include –

(l) 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 Securitization 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;

(ll) Government securities;

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

(lll) Rights or interest in securities;


Rule No. Particulars
Rule 9(A)(1) Every unlisted public company is required to issue the securities only in dematerialized form and facilitate dematerialization of all its existing Securities as per provisions of the Depositories Act, 1996 and regulations made there-under.
Rule 9(A)(2) Every unlisted company has to ensure that entire holding of securities of its Promoters, Directors, Key Managerial Personnel is in dematerialized Form, at the time of making an offer for issue or buyback of securities or issue of bonus shares or Rights.
Rule 9(A)(3) Every holder of securities who intends to transfer securities on or after October 02, 2018 or who intends to subscribe to any securities of an unlisted public company (whether by way of private placement or bonus shares or rights offer) on or after October 02, 2018 has to make sure that all their existing Securities are held in dematerialized form.
Rule 9(A)(4) Every unlisted public company shall facilitate dematerialization of all its existing securities by making necessary application to a depository as defined in the Depositories Act, 1996 and shall secure International Security Identification Number (ISIN) for each type of security and shall inform all its existing security holders about such facility.
Rule 9(A)(5) & (6) It 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 the unlisted public company shall not issues the shares until the fees is paid.
Rule 9(A)(8) The Audit Report provided by the Practicing Company Secretary under Regulation 55A of the SEBI (Depositories and Participants) Regulations, 1996 shall be submitted by the unlisted public company on a half yearly basis to the Registrar under whose jurisdiction the registered office of the company is situated.
Rule 9(A)(9) The grievances, if any, of the security holders of unlisted public companies under this Rule shall be filed before the Investor Education and Protection Fund Authority.


Thus, the above amendment comes at a time when the Ministry of Corporate Affairs (MCA) is clamping down on shell companies that are suspected of being conduits for illicit fund flows and such amendments will bring major benefits to the stakeholders as well as to the Statutory Authorities.


Ms. Jaya Sharma-Singhania

Mr. Mohit Patel

Jaya Sharma and Associates, Practising Company Secretary Firm, Mumbai.

CS Jaya Sharma & Mohit Patel

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March 2024