Institute of Company Secretaries of India (ICSI) has submitted a letter to the Ministry of Corporate Affairs (MCA), addressing the practical difficulties private companies face in the dematerialisation process mandated by Rule 9B of The Companies (Prospectus and Allotment of Securities) Rules, 2014. Key issues include a significant backlog in the issuance of International Securities Identification Numbers (ISINs), with about 25,000 applications pending at NSDL and 8,000 at CDSL, causing processing delays of 30 to 45 days. Additionally, the costs associated with dematerialisation, including depository fees and IT system upgrades, range from ₹125,000 to ₹175,000 for registration and ₹215,000 to ₹250,000 annually, which adds financial strain on companies. Operational complexities also pose challenges, particularly for foreign shareholders needing a PAN to open DEMAT accounts. Despite some companies completing their obligations, delays from NSDL, CDSL, and Registrars and Transfer Agents (RTAs) have created bottlenecks beyond their control. Consequently, ICSI requests that companies compliant with dematerialisation requirements but awaiting responses from these agencies be exempt from penalties until December 31, 2024. ICSI is prepared to provide additional information if needed.
THE INSTITUTE OF
Company Secretaries of India
IN PURSUIT OF PROFESSIONAL EXCELLENCE
Statutory body under an Act of Parliament
(Under the jurisdiction of Ministry of Corporate Affairs)
MCA: OCT/2024 | Dated: October 17, 2024
Ms. Deepti Gaur Mukerjee
Secretary
Ministry of Corporate Affairs
Government of India
Shastri Bhawan
New Delhi —110 001
Respected Madam,
Subject: Practical difficulties faced while processing dematerialisation process by Private Companies.
With reference to Rule 9B of The Companies (Prospectus and Allotment of Securities) Rules, 2014, private companies (other than small companies) are mandated to issue securities in dematerialised form and facilitate the dematerialisation of all existing securities as per the Depositories Act, 1996. In this regard, we previously submitted a letter on September 9, 2024, requesting an extension for meeting the DEMAT requirements outlined in Rule 9B (copy enclosed).
We wish to draw your attention to several practical difficulties encountered by private companies during the dematerialisation process as under:
1. Backlog and Delays in ISIN Creation
As of now, there is a significant backlog in the issuance of ISINs. Approximately 25,000 applications are pending with NSDL, and 8,000 with CDSL, resulting in a processing delay of 30-45 days even after the submission of required documentation and payment. Further, delays from Registrar and Transfer Agents (RTAs) in processing documentation add to the challenge, making it difficult for companies to comply in a timely manner.
2. High Costs
The dematerialisation process involves substantial costs, including depository fees and IT system upgrades. Registration costs for companies range between 125,000 and 175,000, with annual fees between 215,000 and 250,000.
3. Operational Complexities
Private companies are required to obtain ISINs and dematerialize their shares through an RTA, while shareholders shall open DEMAT accounts with registered brokers. This process is particularly challenging for foreign shareholders, who face difficulties in obtaining a PAN, which is necessary for opening DEMAT accounts.
It is important to note that several companies have already completed their part of the dematerialisation process, including submission of necessary documents and payments. However, the delays at NSDL, CDSL, and RTAs which is beyond their control and have created a bottleneck.
We respectfully request that such companies that have complied with their obligations but are awaiting responses from these agencies, may not be held liable for any penal consequences till December 31, 2024.
We appreciate your attention to this matter and are happy to provide further details or clarifications if required.
Thank you for your consideration.
Yours faithfully,
CS B Narasimhan
President
The Institute of Company Secretaries of India
