Dematerialisation of Shares of Unlisted Public Companies By CS Richa Singh

Dear Professional Colleagues,

Ministry of Corporate Affairs vide its notification dated 10th September 2018 mandated the issue of securities in dematerialized form and facilitating dematerialisation of all its existing securities by unlisted public Companies which shall effective from October 02, 2018.
This is another step taken by the Ministry Corporate Affairs towards the cleaning process and to bring transparency in Corporate Governance.

Applicable Acts to Dematerialization of Securities of Unlisted Public Companies:

  • Companies Act, 2013;
  • Depositories Act, 1996;
  • SEBI (Depositories and Participants) Regulations 1996; and
  • SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993
Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014 provides for Issue of securities in dematerialised form by unlisted public companies. Hence, this Rule is only applicable to the unlisted Public Company.
There are total 10 Sub Rules in Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014 which deals and provides for the dematerialization of Securities by the Unlisted Public Companies.
(1) Every unlisted public company shall –
(a) issue the securities only in dematerialised form; and
(b) facilitate dematerialisation of all its existing securities.

Now, what is the meaning of Securities and Dematerialized Form?

  • As per Section 2(81) of the Companies Act, 2013, Securities means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).
  • Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form. In simple meaning, a Dematerialized form of securities means keeping your securities in electronic mode same as keeping our money with Bank (s), here it is with Depository (ies). 
In India, there are two depositories namely National Securities Depository Limited (NSDL) or Central Depository Services (India) Limited (CDSL) that are registered with SEBI. Any unlisted Public Company may avail Demat facility either from NSDL or CDSL or both as per the wisdom of the Management.

Every unlisted public company shall facilitate dematerialisation of all its existing securities and shall secure International Security Identification Number (ISIN) for each type of security and shall inform all its existing security holders about such facility. Each type of Security shall have unique ISIN number.
Now let us understand the process of availing Demat Facility with NSDL:
  • Finalize Registrars to an Issue and Share Transfer Agents (RTA).
  • Finalize Depository with which Demat Facility to be availed.
  • Appoint Registrars to an Issue and Share Transfer Agents (RTA) and authorized Authorized Signatory for availing Demat Facility by way of Board Resolution.
  • Issue appointment letter to the RTA.
  • Prepare the required documents and send to the RTA for its further processing.
  • Letter of intent cum Master Creation Form.
  • Net worth certificate from a Chartered Accountant as per last audited annual report.
  • List of Authorised signatory with Board Resolution with specimen signature.
  • Certified true copy of Memorandum & Articles of Association.
  • Audited annual reports for the last two years - Certified to be true copies.
  • If a company has issued equity shares after latest balance sheet, the company has to provide a certified true copy of Form PAS-3.
  • If there is any variation in face value of shares or reduction in capital or change in the authorized capital after the last balance sheet date, the company has to provide a certified true copy of Form SH-7.
  • If the company is already admitted in CDSL, the ISIN activation letter from CDSL to be submitted.
  • Tripartite agreement in triplicate ( 3 copies) each copy should be franked for Rs. 200/- each, no dates to be mentioned.
  • Certified true copy of TAN & GST Certificate of the Company
Note: Format of the documents will be provided by the RTA.
  • An unlisted Public Company is required to pay Rs. 30,000/- plus taxes at the applicable rate  + custodian fees depending on the paid-up capital of the company for the purpose of making its shares available for dematerialization.

Q. What is the applicability of Rule 9A?

Ans: As per Rule 9A, it is applicable to the unlisted Public Company.

Q. Who is a Registrar and Transfer Agent (RTA)?

Ans: An RTA is an agent of the issuer. RTA acts as an intermediary between the issuer and depository for providing services such as dematerialization, rematerialization, initial public offers (IPO) and corporate actions etc.

Q. Who is the registered owner of Securities?

Ans: When the securities of a company are held in physical form by an investor, his/ her name is recorded in the books of the company as a ‘Registered Owner’ of the securities. When physical shares are converted into electronic form, the depository becomes ‘Registered owner” in the books of the company and investor’s name is removed from books of the company.

Q. Who is a Beneficial Owner (BO)?

Ans: All the benefits of the dematerialized shares are given to the actual investor since the depository holds the securities in a fiduciary capacity on behalf of the investors who have opened a demat account with the depository. Hence, the actual investor is the “Beneficial Owner” (BO) of the securities.

Q. Whether it is mandatory for Promoters, Directors and KMPs to convert their securities in Dematerialized Form?
Ans: It is the obligation of the Company ensures that entire holding of Promoters, Directors and KMPs are in dematerialized form before making an offer for the issue of any securities or Buyback of securities or issue of bonus shares or rights offer.
Q.Whether the shareholders mandatory have to dematerialize their securities?
Ans: Every holder of securities of an unlisted public company on or after 02.10.2018, can transfer their securities after dematerializing only and the new securities of the unlisted public Company can be subscribed if his existing entire holding is in dematerialized form before such subscription.
Q.Whether each type of Securities should have separate ISIN?
Ans: Yes, each type of Securities should have unique ISIN.
Q. Where the grievance, if any, of the Security holder, will be filed?
Ans: Any grievances of security holders of unlisted public companies under this rule shall be filed before the Investor Education and Protection Fund Authority.
For more details on the subject matter, the below link can be referred:-

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  • Thanks for sharing updated information and details list of the Indian share market. It is very useful to Indian traders who always take advantage of the Indian Finance Market. You can approach SAG RTA Registrar and Transfer Agent, a top portal providing expert services related to the Dematerialisation of Shares of Unlisted Public Companies.

    05-06-2019 / 03:52:50 PM