Summary: The Ministry of Corporate Affairs (MCA) issued a notification on October 27, 2023, mandating that Non-Small Private Companies dematerialize their shares by September 30, 2024, as per the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023. This follows the earlier requirement for public companies to do so since 2018. The amendment stipulates that these companies must issue and transfer securities in dematerialized form. This change impacts the securities held by promoters, directors, and key managerial personnel, who must also dematerialize their shares by the deadline. Non-Small Private Companies that fail to comply will face penalties under Section 450 of the Companies Act. Additionally, these companies are required to file Form PAS-6, a reconciliation of share capital audit, with the Registrar twice a year, starting from March 2025. Key exceptions include Section 8 companies, Nidhi companies, and small private companies. The MCA has set a timeline for companies to apply for ISIN numbers and ensure all security holders are informed about dematerialization facilities. This move aims to enhance transparency and investor protection within the corporate sector.
Mandatory Demat of Shares of Non-Small Private Company and PAS 6
MCA Notification Dated: 27.10.2023.
(25th November 2023)
SHORT SUMMARY:
The author will cover the “Mandatory Demat of Securities of Non-Small Private Limited Companies ” in this column.
The MCA has issued a Notification. Dated: October 27th, 2023 -Subject: Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023.
As per provisions of Companies Act, 2013 MCA has already made it mandatory for Public Companies to keep and transact their shares in Demat w.e.f. 02nd October 2018. That time it was not mandatory for Section 8 Private Companies to Demat their Shares.
The Ministry of Corporate Affairs in its drive to enhance transparency, investor protection and corporate governance, has notified Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 effective from 30th September 2024.
In accordance with the said rules, All Non Small Private Limited Companies need to dematerialize their existing securities and ensure that further issue of securities and transfers are only in dematerialized form.
MCA has given 18 months’ time to Non-Small Private Company w.e.f. 31 March 2023 to 30 September 2024 for compliance of provision of these rules.
1. Que: Whether a Non-Small Private Company with share capital is also covered under the Present Amendment?
Yes. Non Small Private companies will get covered under the Present Amendment irrespective of the quantum of share capital.
2. Que: Whether a Non-Small Private Company limited by guarantee is also covered under the Present Amendment?
No. As there is no share capital in case of a Non-Small Private Company limited by guarantee, the Present Amendment will not apply
3. Que: If a Non-Small Private Company Incorporated after 31st March 2023. Whether Demat provisions will be applicable on that Company or if applicable, within how many days of incorporation company have to comply with the same?
Any Non-Small Private Company incorporated after 31st March 2023 required to comply with provisions of Demat within 18 months from the date of Incorporation.
Provisions of Companies Act, 2013:
- Section 29 of Companies Act, 2013
- Rule 9B of the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023
- Form PAS 6
A. NON-APPLICABILITY:
The provision of Demat of Securities shall not be applicable on the following Companies:
1. Section 8 Company, Limited by Guarantee
2. Nidhi Company
3. Government Company
4. Wholly Owned Subsidiary Company of Public Company
5. Small Private Limited Companies
B. APPLICABILITY:
1. Applicable on Public Limited Companies w.e.f.02nd October, 2018
2. Applicable to Non-Small Private Limited Companies w.e.f. 30th September 2024.
Small Company
“small company” means a company, other than a public company, — (DG)
i. paid-up share capital of which does not exceed Four Crore rupees or such higher amount as may be prescribed and
ii. turnover of which as per profit and loss account for the immediately preceding financial year does not exceed Forty crore rupees or such higher amount as may be prescribed (DG)
Provided that nothing in this clause shall apply to— (DG)
(A) a holding company or a subsidiary company.
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act.
INTRODUCTION
MCA has added Rule 9B after Rule 9 to Companies (Prospectus and Allotment of Securities) Rules, 2014. As per the amendment,
Every Non-Small Private Company with effect from 30 September 2024 shall-
- Issue its securities only in dematerialized form; and
- Ensure dematerialization of all its existing securities
A. Major Impact of Dematerialization on Company:
i. After 30.09.2024, Non-Small Private Company has to ensure that entire holding of securities of its Promoters, Directors, Key Managerial personnel is in dematerialized Form, otherwise company shall not be able to do followings:
a. Issue of securities.
b. Buy-back of securities.
c. Issue of bonus shares; and
d. Rights issue
II. From 30.09.2024, all new issue of securities or transfer of securities shall be only in Dematerialize form for Section 8 Companies.
B. Impact on Security Holders (Transfer / subscription of Securities):
As per Sub Rule 4 of Rule 9B of the amendment specifies that, every holder of Securities
i. who intends to transfer securities on or after 30 September 2024 shall get such securities dematerialized before the transfer; or
ii. who intends to subscribe to any securities of the concerned Non Small Private Company has to make sure that all their existing Securities are held in dematerialized form before such transfer or subscription to the Securities.
A. PROCESS OF COMPLIANCES:
FIRST STEP:
As per Rule 9B every holder of security of Non Small Private Company can transfer its shares on or after 30th September 2024 only in Demat Form. For conversion of shares into Demat shareholders require ISIN No. of Company.
As per Companies Act, 2013 Rule 9B it is the responsibility of company to give opportunity to its shareholders to convert their shares into Demat. Therefore, all the Section 8 Companies required applying for ISIN on or before 30th September 2024.
Even as per Rule 9B(5) and Rule 9A(4) Every Non Small Private Company shall facilitate dematerialization 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.
One can opine that:
It is mandatory for all Section 8 Companies to apply for ISIN no. to comply with provisions of Rule 9B. Irrespective of the fact whether shareholders want to transfer their shares or not. It is the responsibility of the Company to facilitate dematerialization to shareholders.
Que: If a Non Small Private Company applied for ISIN after 30 September 2024, shall it be considered as noncompliance?
The due date for the application of ISIN was 30 September 2024. If any company applied for the same after that, it shall be considered noncompliant, and the company is liable for the penalty u/s 450.
Consequences:
As there is no penalty/ fine prescribed under rule 9B therefore, as per section 450 of Companies Act, if no penalty/ fine prescribed in any Rule or Section then penalty / fine shall be as per Section 450 i.e.
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.
SECOND STEP:
As per the first step it is concluded that it is mandatory for Non Small Private Company to apply for ISIN. In second step what are the compliances on Non Small Private Company after allocation of ISIN:
As per Rule 9A (8) Every Non Small Private 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.
One can opine that:
Every Non-Small Private Limited Company mandatorily required to file Reconciliation of Share Capital Audit Report with Roc within 60 days of end of half year.
Que: What is the Due Date of filing PAS 6?
The due date of filing of PAS 6 is:
- 30 May for half year ended 31st March
- 20 November for half year ended 30th November
Que: Will the Non Small Private Company be required to file form PAS-6 for half year ending September 2024?
The provisions of the Present Amendment are applicable after 18 months from the closure of FY 22-23 i.e., from October 01, 2024 and therefore the companies will be required to file form PAS-6 for the half year beginning from October 2024 and therefore the first PAS-6 shall be filed for half year ended March 2025.
Que: If all the shareholders have not converted their shares in Demat, whether, Company is required to file PAS 6?
In Reconciliation of Share Capital Audit Report i.e. PAS 6, Company have to give details of Shares in Physical as well as shares in Demat. Therefore, even if shareholders have not converted their shares into Demat the company is required to file PAS-6.
Consequences:
As there is no penalty/ fine prescribed under rule 9B therefore, as per section 450 of Companies Act, if no penalty/ fine prescribed in any Rule or Section then penalty / fine shall be as per Section 450 i.e.
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.
THIRD STEP:
In third step further compliances on Section Company after allocation of ISIN:
A. Make timely payment of Fees (admission as well as annual).
B. Maintenance of Security deposit of 2 years’ Fees, as per agreement executed with the followings:
- Depository;
- Registrar to an issue;
- Share Transfer Agent
MOST IMPORTANT QUESTION – IMPACTS
| • Company | • Apply for ISIN• File Half yearly Reconciliation Report
• If fails to comply above liable for fine under section 450 |
| • Shareholders | • Until Unless don’t convert shares in Demat• Can’t make any transfer and subscription of shares |
Therefore, one can opine that
- In case Company fails to apply for ISIN or fails to file half yearly audit company is liable for consequences under Section 450.
- If shareholders fails to convert shares in Demat they are liable for consequences i.e. not able to transfer of shares not able to subscribe shares.
B. PROCESS OF COMPLIANCES:
Most Important: Every Non Small Private Company 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.
Key Highlight of E-Form PAS-6:
1. All information shall be furnished for the half year ended 30th September and 31st March in every half financial year for each ISIN separately
2. Mention ISIN of the Company
3. Detail of capital of company:
-
- Issued Capital
- Held in dematerialised form in CDSL
- Held in dematerialised form in NSDL
- Held in Physical form
- Reason for any difference in Issued & Total Capital
4. Details of changes in share capital during the half-year under consideration.
5. Detail regarding Updation of Register of Members and reason for non updation.
6. Whether there were dematerialised shares in excess in the previous half-yearly period and whether company resolved the matter mentioned in point no. 10 above in the Current half-year
7. Mention the total no. of demat requests, if any, confirmed after 21 days and the total no. of demat requests pending beyond 21 days with the reasons for delay.
8. Details of Company Secretary of the Company, if any.
9. Details of CA/CS certifying this form.
10. No penalty is prescribed for non-compliance than in this case Section 450 of Companies Act, 2013 shall become applicable.
Whether the private companies covered under Rule 9B will be required to maintain a register of members?
No. In terms of Section 88 (3) of the Act, the register and index of beneficial owners maintained by a depository under section 11 of the Depositories Act, 1996 (22 of 1996), will be deemed to be the corresponding register and index for the purposes of the Act.
*****
Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).
(Republished with amendments)
Author Bio
Hi, I am a director of a private limited company with all its share capital in demat mode. My CS wants the details of all transfers during the year whereas the Registrar says no such details are available with them . They only have the shareholders list on a particular day. Also, since the full share capital is in demat mode, shareholders are able to transfer their shares freely but as per you they are not freely transferable. What is the correct position on both the points. Pls provide your phone number or call at 9910256888. Regards
1. isnt it increase the cost of private company by paying AMC of dematerialisation of shares ?
2. what is the object of MCA as the private companies are closed held companies.
Hi there,
The object of this notification as per my view is to keep a proper track of ownership of Shares in Private Companies. As we all must be aware that shares in private companies are not freely transferable, even though many private companies are adopting wrong practices to faciliate the share transfer to an outsiders.
The details of share transfer are not to be filed with any MCA except in the annual return which is a annual compliance (As SH-4 is an internal document for a Company) , so the mandatory requirement to demat the securities will keep the track on the transfer and proper documents will be executed in private companies also.
Hopefully this will help you to some extent, to answer your Quest.