Recently, SEBI mandated issue of securities in dematerialised form and directed Board of directors to abstain from approving any physical transfer w.e.f. October 2, 2018 in case of unlisted public companies and w.e.f. April 1, 2019 in case of entities having its specified securities listed on stock exchange.
Depositories viz. NSDL and CDSL facilitate holding of securities in paperless form and Depository Participants (‘DPs’) are the agents of the Depositories that enable opening of demat account by investors to hold securities in dematerialized form. Depositories and DPs are registered with SEBI. Depositories are governed by Depositories Act, 1996 read with SEBI Act, 1992 and DPs were governed by SEBI (Depositories and Participants) Regulations, 1996 (Erstwhile Regulations).
SEBI had constituted a Committee under the Chairmanship of Shri R. Gandhi, Former Deputy Governor, Reserve Bank of India, on October 16, 2017, to review the existing framework of Market Infrastructure Institutions (MIIs). The Committee submitted its report thereon March 26, 2018 and the same was discussed at the Board meeting held on June 21, 2018.
SEBI vide notification dated October 3, 2018 has notified Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 (DP Regulations, 2018) repealing the Erstwhile Regulations w.e.f. date of publication in Official Gazette i.e. October 3, 2018. However, the circulars, guidelines, regulations framed pursuant to Erstwhile Regulations will continue to remain in force and shall be deemed to be a reference to the relevant provisions of DP Regulations, 2018.
This write up summarizes the obligations and compliances to be ensured by Issuer and Registrar to an Issue and Share Transfer Agent (RTA) under DP Regulations, 2018.
Obligations of the Issuer:
- Regulation 43 (1): Agreement between depository and issuer
- The Issuer shall enter into an agreement with a depository to enable the investor to hold securities in dematerialised form.
- Where the Issuer has appointed an RTA, the depository shall enter into a tripartite agreement with the Issuer and the RTA.
- Exception: An agreement shall not be required to be entered in case
- the State or Central Government is issuer of Government securities; or
- the depository is issuer of securities;
- Regulation 71: Manner of handling share registry work
- All matters relating to transfer of securities, maintenance of records of holders of securities, handling of physical securities and establishing connectivity with the depositories shall be handled and maintained at a single point e. either in-house by the issuer or by a Share Transfer Agent registered with the Board.
- Regulation 72: Redressal of investor grievances
- Every issuer who is registered as an intermediary under this regulation shall redress the grievances of beneficial owners within thirty days of the date of receipt of the complaint and keep the depository informed about the number and nature of grievances redressed by it and the number of grievances pending before
- Regulation 74: Manner of surrender of certificate of security
- Within fifteen days of receipt of the certificate of security from the participant the issuer shall confirm to the depository that securities comprised in the said certificate have been listed on the stock exchange or exchanges where the earlier issued securities are listed and shall also after due verification immediately mutilate and cancel the certificate of security and substitute in its record the name of the depository as the registered owner and shall send a certificate to this effect to the depository and to every stock exchange where the security is listed
- in case of unlisted companies the condition of listing on all the stock exchanges where earlier issued shares are listed, shall not be applicable
- The issuer shall maintain a record of certificates of securities which have been dematerialised.
- Within fifteen days of receipt of the certificate of security from the participant the issuer shall confirm to the depository that securities comprised in the said certificate have been listed on the stock exchange or exchanges where the earlier issued securities are listed and shall also after due verification immediately mutilate and cancel the certificate of security and substitute in its record the name of the depository as the registered owner and shall send a certificate to this effect to the depository and to every stock exchange where the security is listed
- Regulation 75: Reconciliation
- The issuer shall reconcile the records of dematerialised securities with all the securities issued by the issuer, on a daily basis:
- In case the State or the Central Government is the issuer of Government securities, the depository shall, on a daily basis, reconcile the records of the dematerialised securities.
- The issuer shall reconcile the records of dematerialised securities with all the securities issued by the issuer, on a daily basis:
- Regulation 76: Audit
- The issuer shall submit audit report on quarterly basis, to the concerned stock exchange audited by a qualified Chartered Accountant or a practising Company Secretary, for the purpose of :
- Reconciliation of the total issued capital, listed capital and capital held by depositories in dematerialized form.
- The details of changes in share capital during the quarter and the in-principle approval obtained by the issuer from all the stock exchanges where it is listed in respect of such further issued capital
- The audit report shall also give the updated status of the register of members of the issuer and confirm that securities have been dematerialized as per requests within twenty one days from the date of receipt of requests by the issuer and where the dematerialization has not been effected within the said stipulated period, the report shall disclose the reasons for such
- The issuer shall immediately bring to the notice of the depositories and the stock exchanges, any difference observed in its issued, listed, and the capital held by depositories in dematerialised
- The issuer shall submit audit report on quarterly basis, to the concerned stock exchange audited by a qualified Chartered Accountant or a practising Company Secretary, for the purpose of :
- Regulation 77: Connectivity
- Every issuer or its agent shall establish continuous electronic means of communication with the depository with which it has entered into an
- Regulation 78: Information
- Every issuer whose securities have been declared as eligible for dematerialisation in a depository shall give information to the depository about:
- book closures;
- record dates;
- dates for the payment of interest or dividend;
- dates for annual general meetings and other meetings;
- dates for redemption of debentures;
- dates for conversion of debentures and warrants;
- call money dates and such other information at the time and in the manner as may be specified by the depository in its bye-laws oragreement:
- Provided that no such information would be required to be given to the depository where the State or the Central Government is the issuer of Government securities.
- Every issuer whose securities have been declared as eligible for dematerialisation in a depository shall give information to the depository about:
Obligations of the RTA:
- Regulation 71: Manner of handling share registry work
- All matters relating to transfer of securities, maintenance of records of holders of securities, handling of physical securities and establishing connectivity with the depositories shall be handled and maintained at a single point e. either in-house by a Share Transfer Agent registered with the Board.
- Regulation 72: Redressal of investor grievances
- Every agent or any person who is registered as an intermediary under this regulation, shall redress the grievances of beneficial owners within thirty days of the date of receipt of the complaint and keep the depository informed about the number and nature of grievances redressed by it and the number of grievances pending before
- Regulation 75: Reconciliation
- The issuer or its agent shall reconcile the records of dematerialised securities with all the securities issued by the issuer, on a daily basis:
- In case the State or the Central Government is the issuer of Government securities, the depository shall, on a daily basis, reconcile the records of the dematerialised securities
- The issuer or its agent shall reconcile the records of dematerialised securities with all the securities issued by the issuer, on a daily basis:
- Regulation 77: Connectivity
- Every issuer or its agent shall establish continuous electronic means of communication with the depository with which it has entered into anagreement.
Conclusion:
The DP Regulations, 2018 are replica of the Erstwhile Regulations in relation to compliances w.r.t. issuer and Registrar and Share Transfer Agent. SEBI generally follow a practice to rescind all circulars stipulating or modifying the provision of erstwhile Regulations which are replaced by new Regulations. However, in the instant case, the circulars, guidelines, regulations framed pursuant to Erstwhile Regulations will continue to remain in force and shall be deemed to be a reference to the relevant provisions of DP Regulations, 2018.
(Author- Manoj Kumar Tiwari is Executive with Vinod Kothari & Company and can be reached at corplaw@vinodkothari.com)
