Keeping Securities Mandatorily in Dematerialised form – Applicability to Companies

• Author(s): Manish Kumar Sharma, Sudhanshu Gupta, Ankita Singh
• Date: 03-Aug-2020
• Post in: Corporate Compliances

The Ministry of Corporate Affairs (MCA) vide the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018 dated September 10, 2018 inserted a new Rule 9A which came into effect from October 02, 2018 onwards. As per the said new Rule 9A, every unlisted public company is required to issue its securities only in dematerialised form and take all necessary actions to facilitate dematerialisation of all its existing securities in accordance with the provisions of the Depositories Act, 1996 and regulations made thereunder.

To comply with the above requirements, an unlisted company and holders of the securities of an unlisted public limited company will need to take actions as discussed below:

Actions required by the unlisted public company:

1. The company shall facilitate dematerialisation of all its existing securities by making an application to a depository as defined under the Depositories Act, 1996 and secure International Security Identification Number (ISIN) for each type of security and shall inform all its existing security holders about such facility.

2. The company shall enter into an agreement with the depository and registrar to an issue and share transfer agent and ensure the following:

• Timely payment of fees to the depository and registrar to an issue and share transfer agent.
• Maintain security deposit, at all times, of not less than 2 years’ fees with the depository and registrar to an issue and share transfer agent.
• Comply with the regulations or directions or guidelines or circulars issued by Securities and Exchange Board of India or Depository from time to time in this regard.

In the event an unlisted public company commits default with regard to above requirements, it shall not be able to make any offer of any securities or buyback of its securities or issue any bonus or right shares till the aforesaid payments are made by it.

3. Company shall ensure that entire holding of securities of its promoters, directors, key managerial personnel (KMP) has been dematerialised before the company makes any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer.

4. The MCA vide its notification dated May 22, 2019 mandates all the unlisted public companies to file a half yearly return in form PAS-6 to the concerned Registrar of Companies within sixty (60) days from the conclusion of each half year. The aforesaid notification was effective from September 30, 2019. However, MCA has recently deployed the aforesaid form PAS-6 for filing on its portal in the month of July 2020. The details such as ISIN, number of shares held in physical form and demat form, number of shares held by its promoters, directors, KMP, reason for not keeping the securities in demat form, if applicable etc. are required to be provided in the said form.

Actions required by the holder of securities:
The holder of securities of an unlisted public company, before transferring the shares held by them or before subscribing further shares of an unlisted public company whether by way of private placement or bonus shares or rights offer shall ensure that all the securities held by it/him are in a dematerialised form. The aforesaid requirement is applicable to subscription of securities and/or transfer of securities on or after October 02, 2018.