Dematerialization of Securities

1. What is the Governing Law?

Section 29 read with Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

2. From when is Rule 9A effective?

02nd October, 2018.

3. What does Rule 9A state?

Every unlisted public company shall –

• issue the securities only in dematerialized form; and
• facilitate dematerialization of all its existing securities

in accordance with provisions of the Depositories Act, 1996 and regulations made thereunder.

4. What are the key features of Rule 9A?

1. 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).

2. 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.

3. 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.

4. Submission of reconciliation of share capital audit report in Form PAS-6.

5. Whether obtaining demat connectivity is mandatory for a public company?

Yes

6. I have a public company which is not working or have limited operations , whether I need to obtain demat connectivity?

Yes

7. Can I convert my public company limited company into private limited to avoid dematerialization

You can convert your public limited company into private limited but in case your company was incorporated before 30th September, 2019, then the requirement of filing of Form PAS-6 would have triggered for half-year ending September 2019 and March 2020 and even though you will convert into private company, non-filing of Form PAS-6 for the said half-years, will lead to lead to default of provisions of Rule 9A

8. Whether a private limited company is required to convert its shares into demat?

No, as Rule 9A applies only to unlisted public company, the private company is not required to convert its shares into demat. However, private company may facilitate the demat connectivity to its shareholders.

9. 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.

10. Whether Rule 9A applies to Section 8 companies?

Yes, if section 8 company is a public company.

11. What shall be consequences on company and shareholders, if they don’t convert shares into demat?

The company cannot come up with following:

• Issue of new securities including rights issue and bonus issue; and
• Buy back of securities

The shareholder cannot transfer their securities.

12. If transfer executed before 02nd October, 2018, but documents have not been delivered before such date. Whether the company can be registered such transfer after 02nd October, 2018?

While the Rule 9A prohibits transfer of shares in physical after 2nd October, 2018 but the Board can consider transfer of shares in physical in the said situation and considering the circumstances of the case. Please take no such express provision is provided in Rule 9A.

13. What is the procedure for obtaining Demat connectivity by company?

a) Hold a Board meeting to consider and approve proposal for obtaining DEMAT connectivity for securities with the depositories;

b) Appoint a Registrar and Transfer Agent (RTA);

c) After appointment of RTA, the company shall file an application along with relevant documents with the depository for obtaining DEMAT connectivity;

d) 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 dematerialised form;

e) 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;

f) Then, the shareholders of the company may approach the RTA for the dematerialization of their securities.

14. Whether company is compulsorily required to appoint a Registrar & Transfer Agent (RTA)?

No but in such case a company will have to purchase the software from relevant depository

15. Whether it’s necessary that Articles should contain provision for issuance of shares in demat form?

No, in case of public company and

Yes, in case of private company.

16. Whether demat connectivity from both NSDL and CDSL is required?

No, company may take demat connectivity from any one depository but all of its shareholders shall have the demat account in that depository only otherwise the shareholder can’t dematerialize its shares .

17. Which Unlisted Public Companies are exempted from dematerialization?

• Nidhi Company;
• Government company; and
• Wholly owned subsidiary.

18. If shares are held by two or more Government Companies in equal ratio in an unlisted public company. Whether the exemption is applicable for such companies?

Exemption is only for Government Company. As per definition of ‘Government Company’, it includes a company which is a subsidiary company of a Government Company. Hence, if more than 50% shares are held by a Government Company, then such unlisted public company is eligible to take exemption from Rule 9A.

19. A Ltd is a wholly owned subsidiary and it intends to allot shares to person other than holding company, whether compliance of Rule 9A is required?

No

20. Whether promoter, director or KMP is required to dematerialize all securities held by them or class of securities, which the company intends to issue?

Before issuing any shares, all the securities whether equity shares, preference shares or debentures, held by a promoter, director or KMP is required to be dematerialized.

Form PAS-6

21. Who shall file PAS-6?

Every unlisted public company shall submit Form PAS-6 to the Registrar of companies within 60 days from the conclusion of each half year.

22. Which Companies are exempted from filing of PAS-6?

• Nidhi Company;
• Government company; and
• Wholly owned subsidiary.

23. Whether a private limited company is required to file Form PAS-6, if it has taken demat connectivity?

No.

24. When the Form PAS-6 has been deployed on MCA Portal?

Form PAS-6 has been deployed on 15th July, 2020.

25. What is the due date for filing of PAS-6?

60 days from the date of the conclusion of each half year. i.e.

Half year ended 31st March: 30th May; and

Half year ended 30th September: 28th November.

26. What is the due date for filing of PAS-6 for previous periods?

MCA vide Circular No. 16/2019 dated 28th November, 2019 had stated that the time limit for filing Form PAS-6 (Half-yearly Reconciliation of Share Capital Audit Report) without additional fees for the half-year ended on 30th September, 2019 will be 60 days from the date of deployment of this form on MCA-21 portal.

Accordingly, the last date for filing the Form PAS-6 for the half-year ended on 30th September, 2019 and 31st March, 2020 was 13th September, 2020.

27. If the shareholders of an unlisted public company have not yet converted their shares in Demat Form? Whether such company needs to file PAS-6?

Yes.

28. 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.

29. If a company has not yet obtained ISIN. Can they obtain it now?

Yes, a company can obtain ISIN now.

30. A company has issued different classes of preference shares. Whether ISIN for each class is required to be obtained?

Yes

31. With respect to which security, the details need to be provided in Form PAS-6?

In Form PAS-6, all details shall be provided with respect to security, the ISIN of which is provided in the form.

32. Does the Form PAS-6 apply to debentures also along with equity and preference share capital?

No, as the form name suggests, it pertains to share capital only.

33. Whether single form be filed for two or more ISIN?

No, different form needs to be filed.

34. Whether Form PAS-6 can be filed after 13th September, 2020 under CFSS?

Yes.

35. In Column no. 5 of the form, does it require details for particular period i.e. for half year ended or for the entire issued capital along with demat information?

It requires details for the entire issued capital along with demat information.

36. In Column no. 8 of form whether it requires the details of shares held by promoters/ Directors/KMPs for the half year ended or for the entire holding?

It requires details for the entire holding.

37. A promoter is also a director of the company, so how to provide details of shareholding in column no. 8, where details of shares held by promoters, directors and KMP is required?

Mention the number of shares held both for promoter and director

38. Column no. 10 requires to confirm whether there were dematerialized shares in excess in the previously half yearly period, does it require to mention whether there were any additional allotment / conversion of physical shares in the demat form for half year ended on 30th September, 2020 or 31st March, 2020.

It refers to a situation where shares have been dematerialized in excess than required.

39. Do we need to attach any documents/ supporting in PAS-6?

No, there is no need to attach anything in the form of PAS-6.

40. Who can certify the form PAS-6?

Practicing Company Secretary or A Practicing Chartered Accountant is authorized to certify the form PAS-6.

41. Can we fill ‘Z999999999’ instead of ISIN in Form PAS-6?

Technically, form may be filed. However, this activity will attract sections 447 & 448 (Punishment for fraud and false statement) on part of the company as well practicing professional who certified the form.

42. 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.