WHETHER PRIVATE LIMITED COMPANIES NEED TO CONVERT THEIR SHARES INTO DEMAT? - Series 498
WHETHER PRIVATE LIMITED COMPANIES NEED TO CONVERT THEIR SHARES INTO DEMAT?
MCA Vide Companies
Amendment Act, 2019 dated 31st July, 2019 has added
Sub Section 1A after sub section 1 of Section 29 (Public Offer of
Securities to be in Dematerialised Form).
New Sub-Section 29(1A) In
case of such class or classes of unlisted companies as may be prescribed, the securities shall be held or transferred
only in dematerialized form in the manner laid down in the Depositories Act,
1996 and the regulations made thereunder.
Old Sub-Section 29(1) Notwithstanding
anything contained in any other provisions of this Act,—
(a) Every company making public offer; and
(b) Such other class or classes of Companies as may be prescribed (Rule 9 of the PAS Rules), shall issue
the securities only in dematerialized form by complying with the provisions of
the Depositories Act, 1996 (22 of 1996) and the regulations made thereunder.
Rule 9 of the
Companies (Prospectus and Allotment of Securities) Rules, 2014 ('PAS Rules') relates
to 'Dematerialization of securities'. According to Rule 9 of the PAS Rules, the
promoters of every public company
making public offer of any convertible securities may hold such securities only
in dematerialised form. Rule 9 further states that the entire holding of
convertible securities of company by the promoters held in physical form up to
the date of the initial public offer shall be converted into dematerialized form
before such offer is made and thereafter such promoter shareholding shall be
held in dematerialized form only.
NOTE:
Amendment Act, 2019 created confusion by ‘removing
word PUBLIC from section 29(1)(b). Confusion is that after removal of word
Public whether provision of section 29 applicable on private limited company
also.
INTERPRETATION:
As the language of Section
29(1)(b)
Such other class or classes of Companies as may be prescribed. However, prescribed companies
are mentioned in Rule 9 of PAS rules. Rule
9 as mentioned above, covering only PUBLIC Limited Companies.
FIRST:
Therefore, one can opine
that as on date even after Amendment Act, 2019 provision of Dematerialization
of securities are applicable only on PUBLIC Limited Companies.
However, by
amendment act power has been given Central Government under law to prescribe
other type of companies for Dematerialization of securities in future.
SECOND:
Further
according the provisions of Section 2(68) of the Act read with the Articles of
Association of such private companies, there is a restriction on transfer of
shares and shares of private company are not freely transferable. This
is feature of Private Limited Company. Therefore, it is not that easy for CG
also to make provision of Dematerialization of securities mandatory on Private
Limited Companies.
Dematerialization
of securities of Private Limited Comapny even shall not promote ease of doing
business.
(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
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Appraiciate your note. But effectively govt has created space for prescribing for demat for class of cos. As rightly pointed due to specific carecters of pvt ltd itd difficult.....but in demat also now co can mark debit restriction
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