Mandatory Demat of
Shares of Private Limited Company
MCA Notification Dated: 27.10.2023.
(28th October 2023)
SHORT SUMMARY:
The
author will cover the "Mandatory Demat of Securities of Private Limited
Companies " in this column.
The
MCA has issued a Notification. Dated: October 27th, 2023 -Subject:
Companies (Prospectus and Allotment of Securities) Second Amendment Rules,
2023.
As
per provisions of Companies Act, 2013 MCA has already made it mandatory for
Public Companies to keep and transact their shares in Demat w.e.f. 02nd
October 2018. That time it was not mandatory for Private Limited Companies to
Demat their Shares.
The
Ministry of Corporate Affairs in its drive to enhance transparency, investor
protection and corporate governance, has notified Companies (Prospectus and
Allotment of Securities) Second Amendment Rules, 2023 effective from 30th
September 2024.
In
accordance with the said rules, Non-Small Private Limited Companies need to
dematerialize their existing securities and ensure that further issue of
securities and transfers are only in dematerialized form.
MCA has given 18 months’ time to Private Limited Company w.e.f.
31 March 2023 to 30 September 2024 for compliance of provision of these rules.
Provisions
of Companies Act, 2013:
·
Section 29
·
Rule 9 of the Companies
(Prospectus and Allotment of Securities) Second Amendment Rules, 2023
The
provision of Demat of Securities shall not be applicable on the following Companies:
1.
Nidhi Company
2.
Government Company
3.
Wholly Owned Subsidiary
Company of Public Company
4.
Small Private Limited
Companies
1.
Applicable on Public
Limited Companies w.e.f.02nd October, 2018
2.
Applicable to Non-Small
Private Limited Companies w.e.f. 30th September 2024.
Small
Company
“small
company” means a company, other than a public company,— (DG)
i.
paid-up share capital
of which does not exceed Four Crore rupees or such higher amount as
may be prescribed and
ii.
turnover
of which as per profit and loss account for the immediately preceding financial
year does not exceed Forty crore rupees or such higher amount as
may be prescribed (DG)
Provided that
nothing in this clause shall apply to— (DG)
(A)
a holding company or a subsidiary company.
(B)
a company registered under section 8; or
(C)
a company or body corporate governed by any special Act.
INTRODUCTION
MCA has
added Rule 9B after Rule 9. As per the amendment,
Every
non-small private company with effect from 30 September 2024 shall-
·
Issue its securities
only in dematerialized form; and
·
Ensure
dematerialization of all its existing securities
A.
Major Impact of Dematerialization on Company:
I.
After 02.10.2018,
Unlisted Company has to ensure that entire holding of securities of its Promoters, Directors, Key Managerial
personnel is in dematerialized Form, otherwise company shall not be able to do followings:
a)
Issue of
securities.
b)
Buy-back of securities.
c)
Issue of bonus shares;
and
d)
Rights issue
II.
From 30.09.2024, all
new issue of securities or transfer of securities shall be only in
Dematerialize form for Non-Small Private Companies.
B.
Impact on Security Holders (Transfer / subscription
of Securities):
As per Sub Rule 4 of Rule 9B of the amendment
specifies that, every holder of Securities
i. who intends to transfer securities on or after 30
September 2024 shall get such securities dematerialized before the transfer; or
ii.
who intends to subscribe to any securities of the concerned Private
Limited Company has to make sure that all their existing Securities are held in
dematerialized form before such transfer or subscription to the Securities.
A.
PROCESS
OF COMPLIANCES:
FIRST
STEP:
As per Rule 9B every holder of security of Non-Small Private
Limited Company can transfer its shares on or after 30th September
2024 only in Demat Form. For conversion of shares into Demat shareholders
require ISIN No. of Company.
As per Companies Act, 2013 Rule 9B it is the responsibility
of company to give opportunity to its shareholders to convert their shares into
Demat. Therefore, all the Non-Small Private Limited Company required applying
for ISIN on or before 30th September 2024.
Even as per Rule 9B(5) and Rule 9A(4) Every Non-Small
Private Limited Company shall facilitate dematerialization of all its existing
securities by making necessary application to a depository as defined in clause
(e) of sub-section (1) of section 2 of the Depositories Act, 1996 and shall
secure International security Identification Number (ISIN) for each type of
security and shall in-form all its existing security holders about such
facility.
One can opine that:
It is mandatory for all Non-Small Private Limited Company to
apply for ISIN no. to comply with provisions of Rule 9B. Irrespective of the
fact whether shareholders want to transfer their shares or not. It is the
responsibility of Company to facilitate dematerialization to shareholders.
Consequences:
As there is no penalty/ fine prescribed under rule 9B
therefore, as per section 450 of Companies Act, if no penalty/ fine prescribed
in any Rule or Section then penalty / fine shall be as per Section 450 i.e.
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 ten thousand rupees, and where the contravention is
continuing one, with a further fine which may extend to one thousand rupees for
every day after the first during which the contravention continues.
SECOND STEP:
As per the first step it is concluded that it is mandatory
for Non-Small Private Limited Company to apply for ISIN. In second step what
are the compliances on Non-Small Private Limited Company after allocation of
ISIN:
As
per Rule 9A(8) Every
Non-Small Private Limited Company governed by this rule shall submit Form
PAS-6 to the Registrar with such fee as provided in Companies (Registration
Offices and Fees) Rules,2014 within sixty days from the conclusion of each
half year duly certified by a company secretary in practice or chartered
accountant in practice.
One can opine that:
Every Non-Small Private Limited Company mandatorily required
to file Reconciliation of Share Capital Audit Report with Roc within 60
days of end of half year.
For the half year ended 31.03 due date is 30th May
and for 30.09 Due date is 29 November. (Irrespective of fact shareholders
converted shares in Demat or Not)
However, in Reconciliation of Share Capital Audit
Report Company have to give details of Shares in Physical as well as shares in
Demat. Therefore if shareholders have not converted their shares into Demat
then report will required to mention details of shares in physical
Consequences:
As there is no penalty/ fine prescribed under rule 9A
therefore, as per section 450 of Companies Act, if no penalty/ fine prescribed
in any Rule or Section then penalty / fine shall be as per Section 450 i.e.
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 ten thousand rupees, and where the contravention is
continuing one, with a further fine which may extend to one thousand rupees for
every day after the first during which the contravention continues.
THIRD
STEP:
In
third step further compliances on Non-Small Private Limited Company after
allocation of ISIN:
A.
Make timely payment of Fees (admission as well as annual).
B. Maintenance of Security deposit of 2
years’ Fees, as per agreement executed with the followings:
· Depository;
· Registrar to an issue;
· Share Transfer Agent
C. Comply with the regulations, guidelines
or circulars, if any issued by the
Securities and Exchange Board or Depository from time to time.
MOST IMPORTANT QUESTION – IMPACTS
Therefore, one can opine that
·
In case Company fails to apply for ISIN or fails to file
half yearly audit company is liable for consequences under Section 450.
·
If shareholders fails to convert shares in Demat they are
liable for consequences i.e. not able to transfer of shares not able to
subscribe shares.
B. PROCESS OF COMPLIANCES:
Most Important: Every
Non-Small Private Company shall submit Form PAS-6 to the Registrar with such
fee as provided in Companies (Registration Offices and Fees) Rules, 2014 within
sixty days from the conclusion of each half year duly certified by a company
secretary in practice or chartered accountant in practice.
Key Highlight of E-Form PAS-6:
1. All information shall be furnished for the half year ended 30th
September and 31st March in every half financial year for each ISIN
separately
2. Mention
ISIN of the Company
3. Detail
of capital of company:
Ø Issued
Capital
Ø Held in
dematerialised form in CDSL
Ø Held in
dematerialised form in NSDL
Ø Held in
Physical form
Ø Reason
for any difference in Issued & Total Capital
4. Details
of changes in share capital during the half-year under consideration.
5. Detail
regarding Updation of Register of Members and reason for non updation.
6. Whether there
were dematerialised shares in excess in the previous half-yearly period and
whether company resolved the matter mentioned in
point no. 10 above in the Current half-year
7. Mention the
total no. of demat requests, if any, confirmed after 21 days and the total no.
of demat requests pending beyond 21 days with the reasons for delay.
8. Details of
Company Secretary of the Company, if any.
9. Details of
CA/CS certifying this form.
10. No penalty is
prescribed for non-compliance than in this case Section 450 of Companies Act,
2013 shall become applicable.
Author – CS
Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from
Delhi and can be contacted at csdiveshgoyal@gmail.com).
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