Demat of Securities by Unlisted Public Companies

We all are aware that listed companies have to mandatorily provide facility of keeping shares of stakeholders in demat form. For this purpose, Company admit its share into depository.

From September 30,2019 in accordance with rule 9 (A) of the Companies (Prospectus and allotment of securities) Rules 2014 (“Rules”) unlisted public company will also have to admit their securities with Depositories.

Let’s get through some basic concepts of demat of shares by unlisted public companies.

What is the requirement of Demat of Securities by unlisted public companies?

Rule 9A(1) of the Rules states that every unlisted public company shall in accordance with provisions of the Depositories Act, 1996 and regulations made there under

  • Issue the securities only in dematerialised form; and
  • Facilitate dematerialisation of all its existing securities

What are the Obligations on unlisted public companies?

As per Rule 9A(2) of the Rules entire holding of securities of its promoters, directors, key managerial personnel has to be in demateriarised form if company is willing for any of below given activities:

  • making any offer for issue of any securities
  • buyback of securities
  • issue of bonus shares
  • rights offer

What are the obligations of securityholder?

Rule 9A(3) states for Restriction on transfer, If securityholders of unlisted public company wishes to transfer their securities after September 30,2019 they will not be able to do so unless their securities are in demat form.

Further securityholder who subscribe securities after September 30,2019 whether by way of private placement or bonus shares or rights offer shall ensure that all his existing securities are held in dematerialized form before such subscription.

Do Companies need to admit all type of securities?

Rule 9A(4) states every unlisted public company shall facilitate dematerialisation of all its existing securities by making necessary application to a depository 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.

What are other Compliances of the Company?

Rule 9A(5) states the obligations of unlisted public companies which are as given below:

  • make timely payment of fees to the depository and registrar to an issue and share transfer agent (RTA).
  • maintains security deposit at all times, of not less than two years, fees with the depository and registrar to an issue and share transfer agent
  • Comply SEBI Regulations with respect to dematerialisation of shares

What are the consequence of Non Compliance in Payment ?

If any unlisted public company has defaulted in payment of depository or RTA than it cannot offer for buyback of shares, Right issue, Bonus Issue etc. in accordance with Rule 9A(6) of the Rules.

What regulations are applicable on Company?

Following regulations are applicable on unlisted companies as per Rule 9A(7) of the Rules.

  • The Depositories Act 1996
  • the securities and Exchange Board of India (Depositories and participants) Regulations, 2018]
  • the securities and Exchange Board of India (Registrars to an Issue and share Transfer Agents) Regulations, 1993

Do Company need to file any Form with ROC?

Yes, as per Rule 9A(8) of the Rules, every unlisted public company is required to file  Eform PAS 6 within 60 days from the end of half year and it should be certified by company secretary in practice or chartered accountant in practice.

Thus PAS 6 is filed twice in a year:

Half Years Time Period Form filed by
For 1st Half year April-September 29th November of the year
For 2nd Half year October-March 30th May of the year

Company should also inform the depository if there is any difference observed in its issued capital and the capital held in dematerialised form.

How securityholder will resolve their Grievance?

Rule 9A(9) and (10) states that any security holder may raise their concern regarding their demat issue before the Investor Education and protection Fund Authority. The Investor Education and protection Fund Authority shall initiate any action against a depository or participant or registrar to an issue and share transfer agent after prior consultation with the securities and Exchange Board of India.

Is there is any Exemptions on applicability of these Rules?

As per Rule 9A(11) these rules are not applicable on:

  • Nidhi Companies
  • Government Companies
  • Wholly owned subsidiary Companies

These rules on demat of shares by unlisted public companies is a welcome step as this would bring more transparency in the manner of securities handling by unlisted public companies. Securityholders of unlisted public companies are advised to convert their shares into demat form as they will not be able to transfer their shares in physical mode further keeping shares in demat form has its own benefits. To know more about how to demat your securities read this article.

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