Mandatory Demat : An Overview

Background:

Ministry of Corporate Affairs vide its recent circular No 17/143/2011-CL.V dated 6.6.2011 is considering to issue Companies (Dematerialization of Certificates) Rules, 2011. The key highlights of the said regulation will be...

1. Mandatory dematerialization of Physical securities by all public limited companies;

2. The guidelines are mandatory even for Unlisted Public Limited Companies;

3. The companies are required to convert their physical securities in Demat mode

By the end of 30^th September 2011;

Procedure:

A company has to register itself with one of the following two Depositories

1. National Securities Depositories Limited (NSDL)

2. Central Depositories Securities Limited ( CDSL)

The Registration Procedure with CDSL shall be, in normal course, as follows:

1.  A company ( hereinafter referred as Issuer ) desirous of getting registered with CDSL  has to submit the certified true copies of the following :

• Annual Report for the last 3 years

• Board Resolution for admission of securities in CDSL, about authorised signatories and appointment of RTA

• Memorandum & Articles of Association along with Incorporation Certificate.

• Draft Offer Document, in case of IPO

• Brief profile of the Company and promoters.

• Net worth Certificate

• Bank attested specimen signature, Pan card or Passport of authorised

• Secretarial Audit Report.(Listed)

• Capital confirmation / Listing certificate from all the Stock Exchanges where the security is listed.

• Capital confirmation / In-principle approvals for listing from all the Stock Exchanges where the security is proposed to be Listed

• Form 2 along with ROC receipt.(In case of increase in the paid up capital after the date of latest Balance Sheet.)

• Letter from RTA confirming about electronic and physical connectivity.(Listed)

• If approved, the tri-partite (for-franking / on-stamp-paper) or bi-partite (for-franking / on-stamp-paper) agreement is executed by CDSL

• In case of admission of equity shares of an unlisted company ( indemnity-cum-undertaking on Rs.200/- non judicial stamp paper) / private limited company ( indemnity-cum-undertaking on Rs.200/- non judicial stamp paper) in the prescribed format

2. An issuer has to file an application form which is known as Master creation form with CDSL.

3. Further an issuer has to mandatory appoint Registrar & Share transfer Agent who will take care of all securities in Demat form.

4. A Tripartite agreement has to be enforced between Issuer, Registrar & Transfer Agent & CDSL effecting the dematerialization

5. Further, Unlisted Public Limited Companies has to furnish an undertaking in the prescribed format with CDSL.

6. An issuer has to pay the necessary fees as follows :

1. Registration Fees: Rs. 20,000.
2. Annual Custodian Fees: Rs. 15000 p.a. plus service tax @ 10.30 %.

7.  Further an issuer has to pay suitable remuneration to the Registrar & Transfer Agent as per mutually decided terms & conditions.

The registration procedure shall be in tune with the provisions laid down in the Depositories Act, 1996.

The Registration Procedure with NSDL shall be, in normal course, as follows:

1. A company (hereinafter referred as Issuer) desirous getting registered with NSDL has to furnish the following documents:

1. Audited Balance Sheet for last two quarters
2. Certified True Copy of Memorandum & Articles Of Association
3. Confirmation letters from respective stock exchanges regarding listing ( If Company listed). Such confirmation must include the Distinctive Number Range of the shares

Listed & should have been issued recently.

Secretarial Audit Report for latest quarter end, if company is listed.

2. An issuer has to file an application in MCF (Master Creation Form) with NSDL.

3. An issuer has to mandatory appoint Registrar & Transfer Agent  & has to take Common Registry Confirmation Letter from it.

4. In case of unlisted companies Book Value Certificates are to be furnished with NSDL.

5. An issuer has to file an undertaking from co in case of private limited companies.

6. If company had been issued equity shares after latest balance sheet in that case company has to provide us certified to be true copies of Form No. 02.

7.  An Issuer has to pay the following fees:

Registration Fees: Rs. 20,000 (Non Refundable)

Annual custodian Fees: Rs. 15000

Subject to service tax @ 10.30 per cent

8. Further an issuer has to pay suitable remuneration to the Registrar & Transfer

Agent as per mutually decided terms & conditions.

The registration procedure shall be in tune with the provisions laid down in the Depositories Act, 1996.

To sum-up, the dematerialization procedure is though mandatory but an easy process to execute.

Before quitting one last thought....  

Ministry is not very sure on making the mandatory provision for dematerialization of shares, however it has offered expert view’s on the said regulation on or before 30th June 2011.