In the year September 2017, the Ministry of Corporate Affairs (‘MCA’) had struck off 2,00,000 Companies from the record of Registrar of Companies (‘ROC’) that were suspected to be ‘shell companies’ and also directed banks to restrict the operation of bank accounts of these companies by the directors or their authorized representatives. It is crucial to note that ‘shell companies’ not defined under the Indian Companies Act, but are those that adhere to basic company laws and are used to avoid taxes and convert black money into white.

It has been usually seen that these ‘shell companies’ are not filing the Income Tax Returns (ITR) or ROC Returns in a proper and timely manner. Mostly, these shell companies manipulate its accounting transactions before filing its Returns. It has been found that there are benami shareholding in these shell companies. It is very difficult to find the real ownership of the shares and the shareholders are untraceable and there is no transparency in the shareholdings of the Company.

In view of the above, MCA has decided to issue a Notification regarding amendment in Companies (Prospectus and Allotment of Securities) Rules, 2018;

  • to enhance the transparency in the ownership of shares
  • to curb the Benami Transactions
  • to weed out the shell companies which is used for Money laundering and other illicit activities and
  • a fight against black money

Accordingly, MCA has issued a Notification No. 853(E) dated 10.09.2018 as Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018 (‘Third Amendment Rules, 2018’). The Notification is regarding the issue of securities in the dematerialized form by the Unlisted Public Companies (‘UPC’) only. This Notification has come into effect from 2nd October, 2018. By the Third Amendment Rules, 2018, a new Rule 9A was inserted first time after existing Rule 9 of Companies (Prospectus and Allotment of Securities) Rules, 2014.

As per new Rule 9A, UPC should issue the securities only in the demat form and also should take necessary steps to facilitate dematerialization of all its existing securities of the Company in accordance with the provisions of Depositories Act 1996 and regulations made thereunder.

Now, no UPC can issue securities in the physical form after 2nd October, 2018. W.e.f. 2nd October, 2018, every UPC which offers the issue of any securities or buyback of securities or issue of bonus shares or right issue or Private Placement shall issue the shares only in dematerialized Form.

It has also been provided in the new Rule 9A that every UPC’s Promoters, Directors and Key Managerial Personnel (KMP) should hold their entire lot of securities of the Company in demat mode in accordance with the provisions of the Depositories Act 1996 before issue of any securities or buyback of securities or issue of bonus shares or right issue or Private Placement by the Company.

Moreover, w.e.f. 2nd October, 2018, onwards an UPC shares can be transferred only through the Demat form. It means the holder of physical shares should first get their shares dematerialized and then they can only transfer their shares. No transfer of physical shares can be done on or after 2nd October 2018.

As per the sub-rule 8 of this Third Amendment Rules, 2018 and under provision of Regulation 55A of the SEBI (Depositories and Participants) Regulations, 1996, UPC which has availed the dematerialization facility are required to submit Reconciliation of Share Capital Audit Report on a Half-yearly basis to ROC whose Jurisdiction the Registered office of the company is situated which audited by a practising Company Secretary, for the purpose of reconciliation of share capital held in depositories and in physical form with the issued/listed capital.

The sub-rule 8 may be read as under-

“(8)-The audit report provided under regulation 55A of the Securities and Exchange Board of India (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.”

It is pertinent to note that this sub rule 8 created lot of ambiguities because it didn’t provide for the form in which and time within which such report to be filed with ROC and the SEBI (DP) Regulations, 1996 has been replaced by SEBI (DP) Regulations, 2018 w.e.f. 3rd October, 2018. Therefore, various representations were filed before MCA regarding practical difficulties faced by the professionals and company while filing such report to ROC.

Therefore, MCA vide notification dated 22nd May, 2019, amended existing Sub-Rule 8 mentioned above and inserted new Sub-Rule 8A in the main Rule 9A, which is effective from 30th September, 2019.

MCA vide its Notification No. 376(E) Dated 22nd May, 2019 has amended the Companies (Prospectus and Allotment of Securities) Rules, 2014 as the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2019 (‘Third Amendment Rules, 2019’). This Notification has come into effect from 30th September 2019. By this Amendment MCA amended existing Sub-Rule 8 and inserted new Sub-Rule 8A in the main Rule 9A of Companies (Prospectus and Allotment of Securities) Rules, 2014 as under-

“(8) Every unlisted public company governed by this rule shall submit Form PAS-6 to the Registrar with such fee as provided in Companies (Registration Offices and Fees) Rules, 2014 within sixty days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice.

(8A) The company shall immediately bring to the notice of the depositories any difference observed in its issued capital and the capital held in dematerialised form.”.

By the Third Amendment Rules, 2019, MCA introduced a new form i.e. Form PAS-6 [Reconciliation of Share Capital Audit Report (half-yearly)] which is basically used for the reconciliation of the share capital audit report on the half-year basis. Form PAS-6 is introduced w.e.f 30.09.2019 in pursuance to the sub-rule (8) of rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

So, Form PAS-6 has to be filed within sixty days from the conclusion of each half year (i.e. on 30th September and 31st March).  All information shall be furnished for the hall year ended 30th September and 31st March in every financial year for each ISIN separately.

However, later on, MCA has received representations regarding extension of the last date of filing of Form PAS 6 under Rule 9A(8) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

The matter was examined by MCA and it was stated by MCA vide its General Circular No. 16/2019 dated 28.11.2019, that the time limit for filing Form PAS-6 without additional fees for the half year ended on 30.09.2019 will be sixty days from the date of deployment of this form on the website of the Ministry.

Now, MCA has made available the Form PAS-6 for filling w.e.f. 15th July, 2020. Accordingly, the last date for filing the Form PAS-6 for the half-year ended on 30th September, 2019 and 31st March, 2020 will be 13th September, 2020.

*Non-Applicability.

The Rule 9A of Companies (Prospectus and Allotment of Securities) Rules, 2014 not applicable to UPC which is: –

(a) a Nidhi;

(b) a Government Company;

(c) a Wholly owned subsidiary.

* Non-Applicability of Rule 9A of Companies (Prospectus and Allotment of Securities) Rules, 2014 was inserted by the Companies (Prospectus and Allotment of Securities0 Amendment Rules, 2019, w.e.f. 22.01.2019.

Caution:

1. As mentioned above, all information shall be furnished for the hall year ended 30thSeptember and 31st March in every financial year for each ISIN (International Securities Identification Number) separately. Therefore, every UPC has to obtain ISIN for each types of existing security.

2. If a UPC has different types of securities e. Equity, Preference, Debenture etc.in this case company has to obtain different ISIN and has to file different PAS-6 for each category of securities.

3. As per section 2(81) of the Companies Act, 2013, “securities” means the securities as defined in clause (h) of Section 2 of the Securities Contracts (Regulations) Act, 1956.   As per section 2(h) of the Securities Contracts (Regulations) Act, 1956 “securities”include 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.

4. If any UPC has not dematerialized its existing securities and not obtain ISIN for each types of securities, form PAS-6 cannot be filed as on date. Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form. Dematerialisation is for enhancing transparency, investor protection and governance in the corporate sector.

5. It is also pertinent to note that there is no penalty prescribed under Rule 9A Companies (Prospectus and Allotment of Securities) Rules, 2014 for non-compliance, therefore section 450 of the Companies Act, 2013 (punishment where no specific penalty or punishment is provided) will be applicable.

*****

Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.

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