In a world rapidly advancing towards digitization, India is no exception. The Government of India, led by Prime Minister Narendra Modi, has championed numerous reforms across sectors, focusing on modernization, transparency, and ease of access. One noteworthy initiative in this journey is the swift digitization of government records. As this digital wave sweeps through various governmental functions, there remains a crucial area that requires immediate attention – the digitization of the financial sector, particularly records related to companies. This article seeks to highlight the significance of digitization in the financial sector, especially for startups and shareholders, and makes a fervent appeal for much-needed reforms.
The Indian government’s commitment to digitization is evident, with efforts to streamline processes, eliminate bureaucracy, and enhance efficiency. This drive has extended to various domains, from healthcare to governance, with the intention of empowering citizens and stakeholders. However, while substantial progress has been made, the financial sector, particularly the records of companies, has yet to witness this transformative shift.
When examining the realm of company records in India, a significant gap becomes apparent. A comprehensive, serial data record of companies registered or operational in India from 1956 to the present is conspicuously absent from any official government platform. The term “chronological data” here refers to a detailed historical account of a company’s journey from its inception under the Companies Act to its present status.
The importance of such chronological data cannot be overstated, especially for stakeholders such as common shareholders, small investors, and senior shareholders. This comprehensive record could serve as a wellspring of accurate and accessible information, aiding shareholders in understanding a company’s trajectory, performance, and compliance history. In my opinion this transparency would empower not only shareholders but govt. agencies too to make informed decisions and address their concerns effectively.
The current lacuna in the availability of comprehensive company records significantly affects shareholders, particularly those seeking to dematerialize their shares. Dematerialization, or “demat,” is the process of converting physical shares into electronic form, offering convenience, security, and ease of trading. However, the absence of a reliable, comprehensive company history hampers the demat process and creates undue obstacles for shareholders.
The Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI) websites are key sources of information for shareholders. However, the presentation of company data on these platforms needs improvement. A vital step would be to display company names in a chronological order, starting from their initial listing or authorization to raise funds. This should be followed by a comprehensive mention of all subsequent changes, such as mergers, acquisitions, and name changes. This format ensures that investors can access the relevant information without undue difficulty, thus promoting transparency and informed decision-making.
2] SEBI’s introduction of the Basic Services Demat Account was intended to facilitate the demat process, particularly for those holding small-value shares or limited quantities. However, a major drawback exists – a shareholder with a normal Demat Account in one depository cannot open a Basic Services Demat Account in another. This limitation creates unnecessary hurdles and discourages shareholders from opting for dematerialization.
Therefore, SEBI can solve the above problem of investors by implementing one of the following two suggestions –
A) By making it mandatory for all companies to provide demat facility in both the depositories.
B) Rectifying this rule by permitting the opening of a Basic Services Demat Account with a depository different from the one hosting the shareholder’s regular Demat Account would undoubtedly promote broader participation in dematerialization.
3] SEBI’s recent warning regarding freezing shares without linked PAN (Permanent Account Number) and KYC (Know Your Customer) details by March, 2023, but subsequently decided to set aside.
Certainly above is a welcome move but still the process for updating PAN and KYC remains unclear, leaving shareholders in a state of confusion. A potential solution, until the aforementioned comprehensive company data becomes accessible, is to introduce a system of “holding letters” by SEBI itself, akin to those issued by mutual funds. These holding letters would represent shares in physical form and can be converted into demat holdings after the resolution of discrepancies. This streamlined process not only simplifies matters for shareholders but also enables authorities to collate crucial information efficiently.
In the light of these pressing issues, it is crucial for India’s lawmakers and regulatory bodies to address the call for reform in the financial sector. Recognizing the potential impediments faced by ordinary, small, and senior shareholders, a swift response is essential. Digitization has the power to democratize access to information, level the playing field, and foster a conducive environment for businesses and investors alike. As India marches toward a digitally empowered future, the financial sector must not be left behind.
In the spirit of Prime Minister Modi’s progressive methodologies, it is hoped that these matters will receive the attention they deserve. By implementing reforms and bolstering the digitization of financial sector records, the Indian government can reinforce its commitment to transparency, inclusivity, and efficiency. In doing so, it will not only empower shareholders but also strengthen the foundation of the nation’s financial landscape.