Everything About Demat of Shares of Public Company - Series 446
The Ministry
of Corporate Affairs in its drive to enhance transparency, investor protection
and corporate governance, has notified Companies (Prospectus and Allotment of
Securities) Third Amendment Rules, 2018 on 10 September 2018 effective from 02nd
October, 2018.:-
In accordance with the said rules, unlisted public
companies need to dematerialize its existing securities and ensure that further
issue of securities and transfers are only in dematerialized form.
A. Dematerialization:
Dematerialization is the process of converting Physical
Securities into electronic format. It should be related to Listing of securities.
A Shareholder intending to dematerialize its securities needs to open a Demat
account with Depository Participant. Investor Deface and surrenders his
Physical Securities and in turn gets Electronic Shares in his Demat Account:
B. Benefit of Dematerialization:
· Elimination of risk of duplication, theft, fraud
and loss with respect to physical share certificates.
·
Exemption from payment of stamp duty on
transfer.
·
Ease in transfer and pledge of securities.
C. Applicability:
Every unlisted public company with effect from 02 October 2018 shall-
·
Issue
its securities only in dematerialized form; and
·
Ensure
dematerialization of all its existing securities
D. Major Impact 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:
·
Issue
of securities;
·
Buy-back
of securities;
·
Issue
of bonus shares; and
·
Rights issue
II. After
02.10.2018, all new issue of securities or transfer of securities shall be only
in Dematerialize form.
iii.
Impact on Security Holders (Transfer / subscription of Securities):
Rule 3 of the amendment specifies that every holder of Securities
who intends to transfer securities or who intends to subscribe to any
securities of an unlisted public company has to make sure that all their
existing Securities are held in dematerialised form before such transfer or
subscription to the Securities;
E. Impact:
The shareholders who continue to hold
shares and other types of securities of listed companies in physical form even after 05.12.2018,
will not be able to lodge the shares with company / its RTA for further
transfer.
Note: Only
the requests for transmission and transposition of securities in physical form,
will be accepted by the listed companies / their RTAs.
In this case, Shareholder will not be able to sell or transfer your
shares after December 5, 2018. You will have to wait for demat of shares before
being able to sell/transfer them.
Transmission and transposition of shares held in paper form
will continue to be allowed. Transmission happens upon death of any or all
shareholders. Transposition means change in ownership pattern; eg. From
combination A & B (in this order) to B & A or from A & B & C to
B & A & C. Though these will still be possible in paper form even after
Dec. 4, 2018, conversion to demat is still suggested for many other benefits it
offers.Issue its securities only in dematerialized form; and
A.
Whether it is mandatory for Public Limited Companies to
Convert Physical shares into Demat?
B.
What are the consequences if Public Company fails to apply
ISIN No. or don’t convert shares in Demat?
C.
Whether there was / is any due date for conversion of
shares into DEMAT? ETC.
D.
Whether it is mandatory for public Limited Companies to
file Reconciliation Share Capital Audit Report?
FIRST STEP:
As
per Rule 9A (3) every holder of security of PUC can transfer its shares on or
after 02nd October, 2018 only in Demat Form. For conversion of
shares into Demat shareholders required ISIN No. of Company.
As
per Companies Act, 2013 Rule 9A it is responsibility of company to give
opportunity to its shareholders to convert their shares into Demat. Therefore,
all the PUC required applying for ISIN on or before 2nd October,
2018.
Even
as per Rule 9A (4) Every unlisted public 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 PUC to apply for ISIN no. to comply with provisions of
Rule 9A. Irrespective of the fact whether shareholders want to transfer its
shares or not. It is responsibility of Company to facilitate dematerialization
to share holders.
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.
SECOND STEP:
As
per first step it is concluded that it is mandatory for Public Limited
Companies to apply for ISIN. In second step what are the compliances on Public
Limited Company after allocation of ISIN:
As per Rule 9A(8) The
audit report provided under regulation 55A of the securities and Exchange Board
of India (Depositories and participants) Regulations, 1996 shall be submitted
by the unlisted public company on a half-yearly basis to the Registrar under
whose jurisdiction the registered office of the company is situated.
H. Legislative
Requirement (Regulation 55A):
Under provision of Regulation 55A of the SEBI (Depositories and
Participants) Regulations, 1996, listed companies are required to
submit
·
Reconciliation
of Share Capital Audit Report on a Half Yearly basis to the stock
exchanges audited by a qualified chartered accountant or a practicing company
secretary, for the purpose of reconciliation of share capital held in
depositories and in physical form with the issued / listed capital.
·
The
Reconciliation of Share Capital Audit Report is required to be submitted
to the Registrar of Companies within 30
days from the end of the Half Year.”
One can opine that:
First
half year for PUC shall be closed on 31st March, 2019, therefore
every PUC mandatorily required to file Reconciliation of Share Capital Audit Report with Roc on
or before 30th April, 2019. (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 Public 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.
QUICK BITES
A.
Whether Company required applying
separate ISIN for each type of Security?
Yes, PUC required applying for separate ISIN for each type
of Security.
B.
Share holders don’t intent to
transfer shares Or Company doesn’t intent to issue new Securities, still it’s
required to apply ISIN and has to file?
Irrespective of fact whether shareholder intent to convert
or not, it is responsibility of Company to apply for ISIN and have to file half
year audit Return.
C.
What is due date of submission
of half yearly Audit Report with ROC?
Due date of submission of Reconciliation of Share
Capital Audit Report is within 30 days of closure of Half Year i.e. 30th
April, 2019 for the half year ended 31.03.2019.
D.
What is due date of submission
of half yearly Audit Report with ROC?
Due date of submission of Reconciliation of Share
Capital Audit Report is within 30 days of closure of Half Year i.e. 30th
April, 2019 for the half year ended 31.03.2019.
E.
Whether return in 55A needs to
file even company has not applied for ISIN or demat it shares?
It doesn’t concern whether company applied for ISIN or not,
but company need to file this form with ROC. Otherwise it will be non compliance
on part of Company.
(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES
Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). Disclaimer:
The
entire contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH
THE USE OF THE INFORMATION
How to file reconciliation statement when there is no form available?
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