Capital is the money, which a company has raised by issue of its shares. It uses this money to meet its requirement by way of acquiring business premises and stock-in-trade etc. In relation to a company limited by shares, the word ‘capital’ means the share capital i.e., the capital in terms of rupees divided into specified number of shares of a fixed amount each. Sub-section 84 of section 2 of Companies Act, 2013 defines a share as “share means a share in the share capital of a company and includes stock”.
Dematerialization means having shares of any company in electronic form. Dematerialization is the process of converting physical shares into electronic format. An investor who wants to dematerialize his shares needs to open a demat account with Depository Participant. Investor surrenders his physical shares and in turn gets electronic shares in his demat account.
Benefits of Demat Account
India adopted the demat System successfully in phase wise manner and there are plans to facilitate trading of almost all financial assets in demat format in future. Ministry of Corporate Affairs (MCA) and Securities and Exchange Board of India (SEBI) made various amendments in this regard.
SEBI initiatives in this regard
On June 8, 2018, SEBI vide its Notification*1 (Link of the amendment has been provided in the last of the article) has amended Regulation 7(2) and Regulation 40 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’) which deals with transfer or transmission or transposition of securities. Amendment provided that any investor who is desirous of transferring shares (which are held in physical form) after April 1, 2019 can do so only after the shares are dematerialized. The same is not applicable for transmission (i.e. transfer of title of shares by way of inheritance/ succession) but the new owners will have to dematerialise the shares if they wish to sell or further transact in them and transposition (i.e. re-arrangement/ interchanging of the order of name of shareholders) cases. Schedule VII, in clause A, sub-clause (2) is also omitted by the amendment, that means the requirement of disclosing PAN card details for transfer of shares in physical form has been done away, since the amended provisions does not allow transfer of shares in physical form anymore.
Before this amendment, the SEBI (LODR) Regulations, 2015 and SEBI (ICDR) Regulations, 2009 (Substituted by SEBI (ICDR) Regulations, 2019*2 (Link of the amendment has been provided in the last of the article) required the entire shareholding of promoter and promoter group to be in dematerialized form. However, the same was not required for public shareholding.
Answer to this question is “YES”, SEBI has just prohibited to transfer securities in physical form, it does not prohibit to hold securities in physical form. On March 27, 2019 SEBI issued a clarification*3 (Link of the amendment has been provided in the last of the article) has been issued in this regard. According to estimates, shareholders of around 5,000 listed companies still have physical shares in their possession. Nowadays shares are issued in demat form. But prior to 2000, listed companies used to issue physical share certificates to investors. Now the question comes to the mind why these shares are still in physical form, there may be some of the reasons like-
a) If the shareholder intends to transfer such securities. Any transfer on or after October 2, 2018 shall be permitted only where the securities are held in demat mode, that means physical securities cannot be transferred.Joint holders who are no more, with no nomination or documents needed to claim.
Most of these shares have been purchased decades ago before the Depository Act was passed and since the investors intended to hold them long-term, but now theirs shares became illiquid and it is advisable to convert these shares in demat mode. Any investor who is desirous of transferring shares (which are held in physical form) after April 1, 2019 can do so only after the shares are dematerialized.
MCA initiatives is this regard
MCA vide its Notification dated September 10, 2018 has issued Companies (Prospectus and Allotment of Securities) (Third Amendment) Rules, 2018 by inserting Rule 9A*4 (Link of the amendment has been provided in the last of the article) dealing with issue of securities in demat form by Unlisted Public Companies. The provisions are applicable to all unlisted public companies. Company must facilitate dematerialization of all it existing securities.
Sub rule (2) of Rule 9A of Companies (Prospectus and Allotment of Securities) Rules, 2014 imposed a restriction on all unlisted public companies, entire holding of promoters, directors, KMP shall be required to be dematerialized in case an unlisted public company intends to make any issue of any securities or buy-back the securities.
For other shareholders, dematerialization is mandatory only in following two cases:
b) If the shareholders intend to subscribe to any securities of an unlisted public company on or after October 2, 2018, existing holding shall be converted into dematerialized form before such subscription, that means physical securities holder cannot subscribe new securities unless all existing securities are dematerialized.
Apart from this, every unlisted public company governed by rule shall submit Form PAS-6 to the Registrar with such fee as provided in Companies (Registration Offices and Fees) Rules, 2014 within
60 days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice.
A new sub section (1A) has been added in Section 29 of the Companies Act, 2013 as “In case of such class or classes of unlisted companies as may be prescribed, the securities shall be held or transferred only in dematerialized form in the manner laid down in the Depositories Act, 1996 and the regulations made thereunder”.
So intention of MCA seems to include private companies in future.
Share certificate is document issued by company to its member for subscribing its shares, it explain the ownership of a number of shares a member purchased from the company. Section 46 of the Companies Act, 2013 provided as “A certificate, issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary], specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares”. With effect from the 29th May 2015, Companies (Amendment) Act, 2015 made optional to have common seal for a company, earlier it was mandatory.
If share certificate is lost or stolen, need to apply for duplicate share certificate. If you have lost or misplaced your share certificates of any company, you need to immediately inform the police (FIR can also be made online) and respective company, of which you had the shares.
It is the responsibilities of the Company to make sure the with respect to identification of applicant. The division bench of Madras High Court in the case of Shoe Specialties Ltd. Vs. Tracstar Investments Ltd. & Ors.  88 Comp Cas 471 (Mad) quoted “Sometimes a shareholders loses or misplaced his share certificate and is compelled to apply to the company, the company incurs a serious responsibility by issuing a new certificate unless the old one is cancelled, and it ought not to be done except on very satisfactory proof of loss or destruction, or on a satisfactory indemnity being given.” Taking note of these passages, the Division Bench observed thus before taking a decision to issue duplicate certificates, a decision had to be taken or satisfaction must be entered that the original certificates was lost. In this case, the very request by the second respondent says that the original certificate is with the first petitioner herein. Hence, by no stretch of imagination, can it be said that the share certificate is lost or destroyed. The authority to issue a duplicate certificate rests with the company only on proof that it is lost.”
From above it can be said that it is transition phase of dematerialization, it is becoming applicable in phase-wise manner. For listed entities, provisions for issue of duplicate share certificate will be used occasionally but as of now still relevant because only trading/ transfer of physical shares is prohibited, as there may be some holders holding physical shares for their unknown reasons. As soon as, provisions of dematerialization become mandatory, relevance of provisions will become ineffective.
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