Complete Procedure of Dematerialisation of Shares Under Companies Act, 2013

Complete Procedure of Dematerialisation of Shares Under Companies Act, 2013. Overview 
Dematerialisation of Shares, in simple words mean holding the shares in electronic form instead of physical form. It is the process of conversion of physical share certificates into electronic entries for which Demat Account is required to be opened. The same is as good as keeping the money in Bank Account. It simplifies the process of holding the securities i.e. making it cost effective, time saving and user friendly. Depository is an institution/organization which facilitates the process of dematerialisation i.e. holds securities such as shares, bonds, debentures etc. in electronic form of all clients/investors through the Depository Participant. National Securities Depository Ltd (NSDL) and Central Depository Services Limited (CDSL) are the two main Depositories in India which are registered with SEBI. As there is no direct interaction between Depository and the Client/Investor, Depository Participant registered under SEBI acts as direct intermediary between Depository and the Client/Investor.  Following are the benefits of Dematerialisation:

Mitigation of risks such as theft, forgery, damage and loss as to holding physical share certificates

Flexibility in purchase and sale of shares

Paper less transactions

Convenience in pledging shares in demat form against loan taken.

Faster settlement system, easily traceable, safe and secure system etc.

Let us discuss in this Article Governing Law, Applicability, Compliance Checklist, Procedural Aspects, FAQs with respect to Dematerialisation of Shares under Companies Act 2013
GOVERNING LAW:
Applicability: (Section 29 of the Companies Act 2013 Read with Rule 9a of the Companies (Prospectus and Allotment of Securities) Rules, 2014)

Section 29: As per Section 29 of the Companies Act 2013, every company making public offer and such other class or classes of public companies as may be prescribed shall issue the securities only in dematerialised form. The word “public” was deleted vide MCA Notification dated 14th August 2019 from such other class or classes of companies. (Effective from 15th August 2019). In view of the above, some class or classes of private Companies may be prescribed by Government for mandatory dematerialisation of securities.

Rule 9A: As of now, Ministry of Corporate Affairs has prescribed all unlisted public Companies (except Nidhi, Government Company or wholly owned subsidiary ) mandatorily to issue securities in dematerialised form and facilitate dematerialization of all its existing securities (Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules 2014 under the Companies Act 2013 vide MCA Notification dated 10th September 2018. (Effective from 2nd October 2018)

Offer for Issue of Securities: Every unlisted public company shall make sure that entire holding of securities of its promoters, directors and key managerial persons has been dematerialised before making  offer for issue of any securities / buyback of securities /issue of bonus shares /rights offer,

Transfer or Subscription: Every holder of securities shall dematerialise its securities before effecting any transfer or subscribing to any securities on or after 2nd October 2018.

Application to Depository: Necessary application is required to be made by the Company to a depository as defined in clause (e) of sub-section (1) of Section 2 of the Depositories Act, 1996 for facilitating dematerialisation of its existing securities.

ISIN: Every unlisted public Company shall secure International Security Identification Number (ISIN) for each type of security and shall inform all its existing security holders about such facility.

E-Form PAS-6: As per Rule 9A(8) of the Companies (Prospectus And Allotment Of Securities) Rules, 2014 ,Every unlisted public company shall submit E-Form PAS-6(Reconciliation of Share Transfer Audit) to the Registrar within 60 days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice. (MCA Notification dated 22nd May 2019 Amendment effective from 30th September 2019).

Depositories Act 1996 and SEBI Regulations: The Depositories Act 1996, SEBI (Depositories and participants) Regulations , 2018 and the SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 shall mutatis mutandis apply to dematerialisation of securities of unlisted public companies.

Procedural Aspects with Respect to Dematerialization of Shares:
The procedure to be followed by the Company for getting its shares dematerialised:

Clause in Articles : Articles must contain clause for authorizing the Company to have its shares in dematerialised form. If it does not contain clause, then the Articles are required to be altered.

Convening a Board Meeting: Hold a Board Meeting for selection and appointment of Depository (NSDL/CDSL) and Registrar/Share Transfer Agent i.e. Registrar to the Issue in case of new issue and Share Transfer Agent in case of transfer of securities and authorizing persons for signing Application and documents.

Application for dematerialisation: The Company shall make and file an Application to Registrar/Share Transfer Agent for dematerialisation of shares along with requisite documents.

List of documents required for dematerialization:

Application for admission as Issuer of Eligible Securities

Net worth certificate from a Chartered Accountant as per audited annual report for the last financial year

Certified true copy of Board Resolution mentioning name of signatories who are authorized by Board to execute documents and list of Authorised Signatories along with specimen signature

Confirmation letter from Registrar & Transfer Agent (R&T Agent).

Certified true copies of Memorandum of Articles & Articles of Association along with Certificate of Incorporati

Certified true copy of Audited Annual Report for the last financial year.

Entering Tripartite Agreement: The Company shall enter tripartite agreement with the Depository (NSDL/CDSL) and registrar to the issue or share transfer agent with respect to securities to be dematerialised.

Allocation of ISIN: Upon receipt of the Application along with requisite documents, the Depository shall facilitate dematerialisation facility and ISIN will be allocated to the securities of the Company.

Obligation of Company: Every Unlisted Public Company dematerialising its securities shall be obliged to :

Pay fees (Admission as well as annual) to the depository and registrar to the issue and share transfer agent on time.

Maintain security deposit at all times of not less than two years with the depository and registrar to the issue or share transfer agent

Comply with the regulations/directions/guidelines/circulars, if any issued by SEBI or Depository from time to time with respect to dematerialisation of shares of unlisted public companies

Compliance Checklist for e-form PAS 6: (Reconciliation of Share Transfer Audit):

Sr. No

PARTICULARS

REMARK/DETAILS

REFERENCE

Sub-rule (8) of rule 9A Companies (Prospectus and Allotment of Securities) Rules,2014
(MCA Notification dated 22nd May 2019 Amendment effective from 30th September 2019 However E-Form PAS 6 was available on MCA Portal from 15th July 2020)
(All the information shall be provided for the half year ending on 30th September and 31st March in every financial year for each ISIN separately.)

Particulars of the Company

Corporate Identity Number (CIN)
Name of the Company
Address of the registered office
Email ID, if any
Phone Number

ISIN

Enter the ISIN for which the form is to be filed
 (Separate ISIN is to be obtained for each security)

Period of filing

Enter the Half year under audit

Details of the Capital of the Company

Provide the details of the capital of the Company in the table provided both for number of shares and as % of the issued capital
a.        Issued Capital
b.       Held in dematerialised form in CDSL
c.        Held in dematerialised form in NSDL
d.       Held in physical form
e.        Total No of shares [(b)+(c)+(d)]

Reasons for difference in 5(a) and 5(e)

Explain the Reasons for difference in 5(a) and 5(e), if any

Details of changes in share capital during the half year-under consideration

Furnish the particulars of each change, no of shares involved and whether the same was intimated to the depositories (NSDL/CDSL)
·       Rights
·       Bonus
·       Private Placement
·       ESOP’s
·       Amalgamation
·       Conversion
·       Buyback
·       Capital Reduction
·       Forfeiture
·       Any other (please specify)

Details of shares held by

Enter the details of shares held by Promoters, Directors and KMP in physical and demat mode.

Status of the Register of  Members

Enter the following details:
a.        Whether the Register of Members is updated (Yes/No)
b.       If not, the date up to which ROM has been updated

10.

Increase in dematerialised shares

Whether there were dematerialised shares in excess in the previous half -yearly period (Yes/No)
Has the company resolved the matter mentioned above in the current half year?(Yes/No)  If Not, reason why?

11.

Delay in demat requests

Enter the total no of demat requests, if any confirmed after 21 days and total no of demat requests pending beyond 21 days along with the reasons of delay.

12.

Contact details

Name, Address, E-mail and Telephone No. of the Company Secretary of the Company, if any
 
Name, Address, E-mail, Telephone No. and Registration No of the Practicing Company Secretary/Chartered Accountant certifying this form

13.

Common agency for share registry work

Details of the common agency for share registry work, if appointed

14.

Additional information

Any other detail that the professional signing this form may like to provide.

15.

Attachment

Optional Attachments, if any
For e g: Clarification Letter if any

16.

Digital Signature Certificate

Affix DSC of  Director or manager or secretary or CEO or CFO of the company and DSC of Practicing Professional (PCA/PCS)

17.

Payment of MCA Fees

As per Companies (Registration offices & fees) Rules,2014

Frequently Asked Questions:
Q1.To which Companies Rule 9A of Companies (Prospectus and Allotment of Securities) Rules, 2014 applicable?
Ans: Rule 9A specifically states that every unlisted public Company shall issue the securities only in dematerialised form and facilitate dematerialization of all its existing securities.
Q2.What is ISIN? To whom application for obtaining ISIN is to be made for dematerialisation of Securities/shares?
Ans: ISIN is a short term used for International Securities Number. It is unique 12 digit alphanumeric identification allotted for each security (For E g. INE0C5F04018). There will be different ISINs for Equity Shares fully paid up, Equity Shares partly paid up, equity shares with differential voting rights, Preference Shares. Necessary application is to be made to a depository as defined in clause (e) of sub-section (1) of Section 2 of the Depositories Act,1996 and obtain ISIN for each type of security.
Q3.Which type of Unlisted public Companies are exempted from Rule 9A of Companies (Prospectus and Allotment of Securities) Rules, 2014?
Ans: Nidhi Company, Government Company and A wholly owned subsidiary
Q4.What is the purpose and due date of E-Form PAS 6 and whether it requires certification of Professional?
Ans: E-Form PAS 6 is for reconciliation of Share Capital Audit Report which is required to be filed by unlisted public Companies with Registrar of Companies within 60 days from the conclusion of each half year i.e. For the Half Year ending on 31st March: 30th May and Half year ending on 30th September: 29th November. E-Form PAS 6 is required to be certified by Practicing Company Secretary or Practicing Chartered Accountant.
Q5.To which authority grievances of security holders of unlisted public Companies is to filed?
Ans: As per Rule 9A of Companies (Prospectus and Allotment of Securities) Rules, 2014, grievances of security holders of unlisted public Companies shall be filed before the Investor Education and Protection Fund Authority. IEPFA shall initiate any action against a depository or participant or registrar to an issue and share transfer agent after prior consultation with SEBI.
Q6.What is the penalty for non-filing E-Form PAS 6?
Ans: There is no specific penalty prescribed for non-filing E-Form PAS 6 under Rule 9A Companies (Prospectus and Allotment of Securities) Rules, 2014. However, Section 450 of Companies Act, 2013 (punishment where no specific penalty or punishment is provided) will be applicable. As per Section 450 of the Companies Act 2013 , the company and every officer of the company who is in default or such other person shall be liable to a penalty of Rs 10,000 and in case of continuing contravention, with a further penalty of Rs 1000 for each day after the first during which the  contravention continues, subject to a maximum of Rs 2,00,000 in case of a company and Rs 50,000 in case of an officer who is in default or any other person.
Role of Compliance Calendar LLP
All unlisted Public Companies are mandatorily required to dematerialise its shares and file Reconciliation of Share Transfer Audit (Half Yearly) in E-Form PAS 6 within sixty days from conclusion of half year which requires Certification by professionals i.e. by  Practicing Company Secretary or Practicing Chartered Accountant. Certain classes of Private Companies may also be covered under the ambit of  Dematerialisation of shares .Compliance Calendar LLP has a team of skilled professionals well versed with legal knowledge of various Acts who can guide you in complying with procedural requirements for dematerialisation of Shares and assist  you in filing of E-Form PAS 6 (Reconciliation of Share Transfer Audit) in a timely manner to save penalties. If you wish to reach out to us, email us to info@ccoffice.in or Call/WhatsApp at 9988424211
Click here to know more about Demat of Shares

Overview

Dematerialisation of Shares, in simple words mean holding the shares in electronic form instead of physical form. It is the process of conversion of physical share certificates into electronic entries for which Demat Account is required to be opened. The same is as good as keeping the money in Bank Account. It simplifies the process of holding the securities i.e. making it cost effective, time saving and user friendly. Depository is an institution/organization which facilitates the process of dematerialisation i.e. holds securities such as shares, bonds, debentures etc. in electronic form of all clients/investors through the Depository Participant. National Securities Depository Ltd (NSDL) and Central Depository Services Limited (CDSL) are the two main Depositories in India which are registered with SEBI. As there is no direct interaction between Depository and the Client/Investor, Depository Participant registered under SEBI acts as direct intermediary between Depository and the Client/Investor. Following are the benefits of Dematerialisation:

Mitigation of risks such as theft, forgery, damage and loss as to holding physical share certificates
Flexibility in purchase and sale of shares
Paper less transactions
Convenience in pledging shares in demat form against loan taken.
Faster settlement system, easily traceable, safe and secure system etc.

Let us discuss in this Article Governing Law, Applicability, Compliance Checklist, Procedural Aspects, FAQs with respect to Dematerialisation of Shares under Companies Act 2013

GOVERNING LAW:

Applicability: (Section 29 of the Companies Act 2013 Read with Rule 9a of the Companies (Prospectus and Allotment of Securities) Rules, 2014)

Section 29: As per Section 29 of the Companies Act 2013, every company making public offer and such other class or classes of public companies as may be prescribed shall issue the securities only in dematerialised form. The word “public” was deleted vide MCA Notification dated 14th August 2019 from such other class or classes of companies. (Effective from 15th August 2019). In view of the above, some class or classes of private Companies may be prescribed by Government for mandatory dematerialisation of securities.

Rule 9A: As of now, Ministry of Corporate Affairs has prescribed all unlisted public Companies (except Nidhi, Government Company or wholly owned subsidiary ) mandatorily to issue securities in dematerialised form and facilitate dematerialization of all its existing securities (Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules 2014 under the Companies Act 2013 vide MCA Notification dated 10th September 2018. (Effective from 2nd October 2018)

Offer for Issue of Securities: Every unlisted public company shall make sure that entire holding of securities of its promoters, directors and key managerial persons has been dematerialised before making offer for issue of any securities / buyback of securities /issue of bonus shares /rights offer,

Transfer or Subscription: Every holder of securities shall dematerialise its securities before effecting any transfer or subscribing to any securities on or after 2nd October 2018.

Application to Depository: Necessary application is required to be made by the Company to a depository as defined in clause (e) of sub-section (1) of Section 2 of the Depositories Act, 1996 for facilitating dematerialisation of its existing securities.

ISIN: Every unlisted public Company shall secure International Security Identification Number (ISIN) for each type of security and shall inform all its existing security holders about such facility.

E-Form PAS-6: As per Rule 9A(8) of the Companies (Prospectus And Allotment Of Securities) Rules, 2014 ,Every unlisted public company shall submit E-Form PAS-6(Reconciliation of Share Transfer Audit) to the Registrar within 60 days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice. (MCA Notification dated 22nd May 2019 Amendment effective from 30th September 2019).

Depositories Act 1996 and SEBI Regulations: The Depositories Act 1996, SEBI (Depositories and participants) Regulations , 2018 and the SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 shall mutatis mutandis apply to dematerialisation of securities of unlisted public companies.

Procedural Aspects with Respect to Dematerialization of Shares:

The procedure to be followed by the Company for getting its shares dematerialised:

Clause in Articles : Articles must contain clause for authorizing the Company to have its shares in dematerialised form. If it does not contain clause, then the Articles are required to be altered.

Convening a Board Meeting: Hold a Board Meeting for selection and appointment of Depository (NSDL/CDSL) and Registrar/Share Transfer Agent i.e. Registrar to the Issue in case of new issue and Share Transfer Agent in case of transfer of securities and authorizing persons for signing Application and documents.

Application for dematerialisation: The Company shall make and file an Application to Registrar/Share Transfer Agent for dematerialisation of shares along with requisite documents.

List of documents required for dematerialization:

Application for admission as Issuer of Eligible Securities
Net worth certificate from a Chartered Accountant as per audited annual report for the last financial year
Certified true copy of Board Resolution mentioning name of signatories who are authorized by Board to execute documents and list of Authorised Signatories along with specimen signature
Confirmation letter from Registrar & Transfer Agent (R&T Agent).
Certified true copies of Memorandum of Articles & Articles of Association along with Certificate of Incorporati
Certified true copy of Audited Annual Report for the last financial year.

Entering Tripartite Agreement: The Company shall enter tripartite agreement with the Depository (NSDL/CDSL) and registrar to the issue or share transfer agent with respect to securities to be dematerialised.

Allocation of ISIN: Upon receipt of the Application along with requisite documents, the Depository shall facilitate dematerialisation facility and ISIN will be allocated to the securities of the Company.

Obligation of Company: Every Unlisted Public Company dematerialising its securities shall be obliged to :

Pay fees (Admission as well as annual) to the depository and registrar to the issue and share transfer agent on time.
Maintain security deposit at all times of not less than two years with the depository and registrar to the issue or share transfer agent
Comply with the regulations/directions/guidelines/circulars, if any issued by SEBI or Depository from time to time with respect to dematerialisation of shares of unlisted public companies

Compliance Checklist for e-form PAS 6: (Reconciliation of Share Transfer Audit):

Sr. No	PARTICULARS	REMARK/DETAILS
1.	REFERENCE	Sub-rule (8) of rule 9A Companies (Prospectus and Allotment of Securities) Rules,2014 (MCA Notification dated 22nd May 2019 Amendment effective from 30th September 2019 However E-Form PAS 6 was available on MCA Portal from 15th July 2020) (All the information shall be provided for the half year ending on 30th September and 31st March in every financial year for each ISIN separately.)
2.	Particulars of the Company	Corporate Identity Number (CIN) Name of the Company Address of the registered office Email ID, if any Phone Number
3.	ISIN	Enter the ISIN for which the form is to be filed (Separate ISIN is to be obtained for each security)
4.	Period of filing	Enter the Half year under audit
5.	Details of the Capital of the Company	Provide the details of the capital of the Company in the table provided both for number of shares and as % of the issued capital a. Issued Capital b. Held in dematerialised form in CDSL c. Held in dematerialised form in NSDL d. Held in physical form e. Total No of shares [(b)+(c)+(d)]
6.	Reasons for difference in 5(a) and 5(e)	Explain the Reasons for difference in 5(a) and 5(e), if any
7.	Details of changes in share capital during the half year-under consideration	Furnish the particulars of each change, no of shares involved and whether the same was intimated to the depositories (NSDL/CDSL) · Rights · Bonus · Private Placement · ESOP’s · Amalgamation · Conversion · Buyback · Capital Reduction · Forfeiture · Any other (please specify)
8.	Details of shares held by	Enter the details of shares held by Promoters, Directors and KMP in physical and demat mode.
9.	Status of the Register of Members	Enter the following details: a. Whether the Register of Members is updated (Yes/No) b. If not, the date up to which ROM has been updated
10.	Increase in dematerialised shares	Whether there were dematerialised shares in excess in the previous half -yearly period (Yes/No) Has the company resolved the matter mentioned above in the current half year?(Yes/No) If Not, reason why?
11.	Delay in demat requests	Enter the total no of demat requests, if any confirmed after 21 days and total no of demat requests pending beyond 21 days along with the reasons of delay.
12.	Contact details	Name, Address, E-mail and Telephone No. of the Company Secretary of the Company, if any Name, Address, E-mail, Telephone No. and Registration No of the Practicing Company Secretary/Chartered Accountant certifying this form
13.	Common agency for share registry work	Details of the common agency for share registry work, if appointed
14.	Additional information	Any other detail that the professional signing this form may like to provide.
15.	Attachment	Optional Attachments, if any For e g: Clarification Letter if any
16.	Digital Signature Certificate	Affix DSC of Director or manager or secretary or CEO or CFO of the company and DSC of Practicing Professional (PCA/PCS)
17.	Payment of MCA Fees	As per Companies (Registration offices & fees) Rules,2014

Frequently Asked Questions:

Q1.To which Companies Rule 9A of Companies (Prospectus and Allotment of Securities) Rules, 2014 applicable?

Ans: Rule 9A specifically states that every unlisted public Company shall issue the securities only in dematerialised form and facilitate dematerialization of all its existing securities.

Q2.What is ISIN? To whom application for obtaining ISIN is to be made for dematerialisation of Securities/shares?

Ans: ISIN is a short term used for International Securities Number. It is unique 12 digit alphanumeric identification allotted for each security (For E g. INE0C5F04018). There will be different ISINs for Equity Shares fully paid up, Equity Shares partly paid up, equity shares with differential voting rights, Preference Shares. Necessary application is to be made to a depository as defined in clause (e) of sub-section (1) of Section 2 of the Depositories Act,1996 and obtain ISIN for each type of security.

Q3.Which type of Unlisted public Companies are exempted from Rule 9A of Companies (Prospectus and Allotment of Securities) Rules, 2014?

Ans: Nidhi Company, Government Company and A wholly owned subsidiary

Q4.What is the purpose and due date of E-Form PAS 6 and whether it requires certification of Professional?

Ans: E-Form PAS 6 is for reconciliation of Share Capital Audit Report which is required to be filed by unlisted public Companies with Registrar of Companies within 60 days from the conclusion of each half year i.e. For the Half Year ending on 31st March: 30th May and Half year ending on 30th September: 29th November. E-Form PAS 6 is required to be certified by Practicing Company Secretary or Practicing Chartered Accountant.

Q5.To which authority grievances of security holders of unlisted public Companies is to filed?

Ans: As per Rule 9A of Companies (Prospectus and Allotment of Securities) Rules, 2014, grievances of security holders of unlisted public Companies shall be filed before the Investor Education and Protection Fund Authority. IEPFA shall initiate any action against a depository or participant or registrar to an issue and share transfer agent after prior consultation with SEBI.

Q6.What is the penalty for non-filing E-Form PAS 6?

Ans: There is no specific penalty prescribed for non-filing E-Form PAS 6 under Rule 9A Companies (Prospectus and Allotment of Securities) Rules, 2014. However, Section 450 of Companies Act, 2013 (punishment where no specific penalty or punishment is provided) will be applicable. As per Section 450 of the Companies Act 2013 , the company and every officer of the company who is in default or such other person shall be liable to a penalty of Rs 10,000 and in case of continuing contravention, with a further penalty of Rs 1000 for each day after the first during which the contravention continues, subject to a maximum of Rs 2,00,000 in case of a company and Rs 50,000 in case of an officer who is in default or any other person.

Role of Compliance Calendar LLP

All unlisted Public Companies are mandatorily required to dematerialise its shares and file Reconciliation of Share Transfer Audit (Half Yearly) in E-Form PAS 6 within sixty days from conclusion of half year which requires Certification by professionals i.e. by Practicing Company Secretary or Practicing Chartered Accountant. Certain classes of Private Companies may also be covered under the ambit of Dematerialisation of shares .Compliance Calendar LLP has a team of skilled professionals well versed with legal knowledge of various Acts who can guide you in complying with procedural requirements for dematerialisation of Shares and assist you in filing of E-Form PAS 6 (Reconciliation of Share Transfer Audit) in a timely manner to save penalties. If you wish to reach out to us, email us to info@ccoffice.in or Call/WhatsApp at 9988424211

Click here to know more about Demat of Shares