Dematerialization of Securities & PAS-6
As per the notification issued by MCA on 10 September 2018, it was notified that with effect from 2nd October 2018:
- every unlisted public company shall issue the securities only in dematerialized form; and
- securities of every unlisted public company can be transferred only in Demat form
- every unlisted public company shall facilitate dematerialization of all its existing securities.
What is Demat?
Demat is short for ‘dematerialized.’ Dematerialized means that the securities held in a Demat account are electronic in nature. These electronic securities are not only easy to access but also safely stored in an archive that is digital and password protected.
WHY DEMAT?
1. Ensures holding of shares in respective shareholder names.
2. Minimal disputes on transfer of shares.
3. Increased protection of shareholder rights.
4. Less paperwork and transaction costs.
5. No need to split certificates to sell only a part of securities.
LEGAL PROVISION
As per section 29 of Companies Act, 2013:
(a) every company making public offer and such other classes of companies as may be prescribed shall issue securities in Demat form; and
(b) in prescribed classes of unlisted companies, securities can be transferred only in Demat form.
As per Rule 9A, *every unlisted public company shall –
(a) issue the securities only in dematerialized form;
(b) facilitate dematerialization of all its existing securities in accordance with the provision of the Depositories Act, 1996 and regulation made there under.
*Except which is a Nidhi Company, Government Co. & Wholly Owned Subsidiary.
What are the key features of Rule 9A?
- Every unlisted public company shall issue the securities only in dematerialized form and facilitate the dematerialization of all its existing securities (obtain ISIN for each type of security).
- Before making any offer for the issue of any securities by the unlisted public company, the entire holding of securities of its promoters, directors, KMP is in Demat form.
- Every securities holder of an unlisted public company shall get his securities in Demat form before transferring to any person or subscribing to any issue of securities.
- Submission of reconciliation of share capital audit report in Form PAS-6.
If a private company is a subsidiary of unlisted public company, is it required to convert its shares into Demat?
Yes, as a private company which is a subsidiary of public company will be considered a deemed unlisted public company and therefore it is required to convert its shares into Demat.
Whether Rule 9A applies to Section 8 companies?
Yes, if section 8 company is a public company.
What is an ISIN?
ISIN (International Securities Identification Number) is a unique 12 digit alphanumeric identification number allotted for security (e.g. INE08FZ08013). Equity fully paid up, equity partly paid up, equity with differential voting /dividend rights issued by the same issuer will have different ISINs.
HOW TO GET ISIN NO. ?
| Hold a board meeting to consider and approve proposal for obtaining DEMAT connectivity for securities with the depositories. |
| Appoint a Registrar and Transfer Agent (RTA) |
| After appointment of RTA, the company shall file an application along with relevant documents with the depositories** for obtaining DEMAT connectivity. |
| The company, depository and RTA shall enter into tripartite agreement in respect of securities that are to be declared as eligible to be held in dematerialized form. |
| After verification of the application and other documents, the depository will provide the DEMAT Connectivity to the company and allocate ISIN to the securities of the company. |
| Now, the shareholders of the company may approach the RTA for the dematerialization of their securities. |
Depositories**
- National Securities Depository Limited
- Central Depository Services (India) Limited
CONVERSION OF SHARES
- Ensure Company has obtained ISIN
- Shareholder(s) will send the (DRF) along with Share Certificates to the Depository Participant (DP)
- DP will mark the certificates as “Surrendered for Dematerialization” & DP will generate an action in the system.
- DP will send back all the documents to the Issuer company.
- After receiving back, the documents from the DP the Co. will send the documents to RTA for approval.
POST DEMAT COMPLIANCES
What are the penal provisions for not filing PAS-6?
As there is no penalty prescribed under rule 9A for non-compliance, therefore Section 450 of Companies Act, 2013 (punishment where no specific penalty or punishment is provided) will be applicable.
As per Section 450, 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 Rs. ten thousand, and where the contravention is continuing one, with a further fine which may extend to Rs. one thousand for every day after the first during which the contravention continues.
For any clarifications/suggestions or any queries please write drop a comment or write to us at info@sigmalegal.in
(SECRETARIAL DEPARTMENT)
TEAM SIGMA LEGAL
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