MCA invites comments on Companies (Dematerialization of Certificates) Rules, 2011 by 30th June, 2011
By 30th June, 2011 on proposed new rules namely Companies (Dematerialization of Certificates) Rules, 2011
No 17/143/2011-CL.V, Dated: 06.06.2011
Ministry of Corporate Affairs
Subject : Companies (Dematerialization of Certificates) Rules, 2011
Sir,
The Ministry of Corporate Affairs is considering to issue Companies (Dematerialization of Certificates) Rules, 2011 so that all public Companies and their subsidiaries which have raised money by issue of shares, debentures, by accepting public deposits, stock, bond or any other financial instruments from public, other than from directors of the company, shall be required to issue and keep such share certificates, debenture certificates and certificates issued for receipt of deposits, stock, bond or any other financial instruments in dematerialized form only, in the manner prescribed in the Depositories Act, 1996 and regulation made there under.
You are requested to examine the draft rules and furnish your comments / recommendations to the Ministry latest by 30th June, 2011 by e-mail on the following e-mail addresses.
monika.gupta@mca.gov.in
kamna.sharma@mca.gov.in
Yours faithfully,
(Monika Gupta)
Assistant Director
‘DRAFT’
[TO BE PUBLISHED IN THE GAZETTE OF INDIA EXTRAORDINARY PART II, SECTION 3,
SUB‐SECTION (i)]
GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
NOTIFICATION
New Delhi, the June, 2011
GSR (E). – In exercise of the powers conferred by clause (b) of sub‐section (1) of section 642 read with section 84, 58(A), 610B & 610C of the Companies Act, 1956, the Central Government hereby makes the following rules, namely:‐
1. Short title and commencement:‐
(1) These rules may be called the Companies (Dematerialization of Certificates) Rules, 2011
2) They shall come into force from 1st October, 2011.
2. In these rules, unless the context otherwise requires.‐
(a) “Act” means the Companies Act, 1956 (1of 1956);
(b) “certificate” means share certificate, debenture certificate, deposit certificate, stock , bond or any other certificate or financial instrument through which money has been raised from the public;
(c) The words & expressions used in these rules but not defined in these rules shall have the same meanings respectively assigned to them in the Act or Depositories Act, 1996.
3. All public Companies and their subsidiaries which have raised money by issue of shares, debentures, by accepting public deposits, stock, bond or any other financial instruments from public, other than from directors of the company, shall issue and keep such share certificates, debenture certificates and certificates issued for receipt of deposits, stock, bond or any other financial instruments in dematerialized form only, in the manner prescribed in the Depositories Act, 1996 and regulation made there under.
4. The companies falling in above categories shall convert their existing such certificates mentioned in para (3) above into dematerialized form by 30th September, 2011.
The usage of words “shall issue” means going forward, it does not apply retrospectively, so need of company opening a demat account for investors or cancelling the physical certificate is not warranted.
What will change is that a company may not be able to issue any shares to persons who have no demat account. As the situation now stands, a person needs a demat account for transferring his shares but not for purchasing IPOs. Henceforth, IPO’s can’t be brought without a Demat account.
The Rules say that “shall issue and keep such share certificates, debenture certificates and certificates issued for receipt of deposits, stock, bond or any other financial instruments in dematerialized form only”
Any such certificate issued is not kept by the company and it is handed over to the investor concerned. The investor holds such investment in his dematerialization account opened by him. These account numbers are not known to the company therefore company cannot credit the account of investors with his her holding. Dematerialised investments are held in fungible form, it is not clear as to how “certificates” are to be held in fungible form. Is the company required to open demat accounts for all its investors and then credit respective account with the outstanding investment of all its investors. Whether all the outstanding certificates issued in physical form will stand cancelled?