Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form.
In order to check applicability of aforementioned rules on debentures, preference shares and other securities, we refer to the definition of Securities as mentioned in Securities Contracts(Regulations) Act, 1956
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
A depository is responsible for holding the securities of a shareholder in the electronic form. These securities could be in the form of bonds, government securities and mutual fund units, which are held by a registered Depository Participant (DP). Currently there are two Depositories registered with SEBI:
• National Securities Depository Limited (NSDL) and the other • Central Depository Service (India) Limited (CDSL).
A DP is the agent of the depository providing depository services to traders and investors.
As per the amended provisions of section 29 of Companies Act,2013, all companies (including Private Limited Companies), subject to class or classes of Companies as may be prescribed by MCA shall issue the securities in Demat form by complying with the provisions of the Depositories Act, 1996 and regulations made there under. Kindly refer appended link for your detailed reference:
Extract of provisions of Section 29 of Companies Act, 2013 given hereunder.
Public offer of Securities to be in dematerialised form
29 (1) Notwithstanding anything contained in any provisions of this Act,-
(a) Every company making public offer, and
(b) Such other class or classes of ( public ) companies as may be prescribed, shall issue the securities only in dematerialised form by complying with provisions of the Depositories Act, 1996 and regulations made there under .
(1A)In case of such class or classes of unlisted Companies as may be prescribed, the securities shall be held or transferred only in dematerialised form in the manner laid down in the Depositories Act, 1996, and regulations made there under.
(2) Any company, other than a company mentioned in Sub Section (1) , may convert its securities in to dematerialised form or issue securities in physical form in accordance with the provisions of this
Act or dematerialised form in accordance with the provisions of the Depositories Act 1996 and regulations made there under.
Earlier, MCA has vide notification dated 10/09/2018 has required unlisted public ltd. companies to admit their securities with depository, effective from 02/10/2018.
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