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Ministry of Corporate Affairs vide its notification dated September 10, 2018 notified amendment to Companies (Prospectus and Allotment of Securities) Rules, 2014. As per the notification, all the Public Companies, with effect from 2nd October 2018, are required to provide DEMAT facilities to all its Security Holders and is required to issue of further shares and transfer of all securities in dematerialized form only.

The new amendment can be summarised in following points:

1) Unlisted Companies to issue Securities in Demat form only

As per the newly inserted Rule 9A, to the Companies (Prospectus and Allotment of Securities) Rules, 2014

“(1) Every unlisted public company shall

(a) issue the securities only in dematerialised form; and
(b) facilitate dematerialisation of all its existing securities

as per Depository Act, 1996 and its Regulations.”

Important point to note here is that the amendment talks about Securities and not just shares. Which means that it covers not only outstanding and future issue of Equity Shares but also Preference Shares, Debentures including NCDs and CCDs etc.

2) Promoters etc to hold securities in DEMAT only

Every Unlisted Public Company making any offer any SECURITIES for:

  • Fresh Issuance;
  • Buy-back;
  • Rights Issue;
  • Bonus

Shall ensure that before making any such offer, entire holding of Promoters, Directors, Key Managerial Personnel of such Company is in DEMAT form only.

3) From October 2, all transfer of Securities to be in DEMAT form only

From October 2, 2018 all the fresh issue of Securities or any transfer of any existing Securities shall be compulsorily in DEMAT form only

4) Obligations on unlisted Public Companies:

a. To facilitate DEMAT of shares and secure separate ISIN for each type of securities

Every unlisted public company shall facilitate dematerialization of all its existing securities by making necessary application to a Depository as defined in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996 and Company shall secure International Security Identification Number (ISIN) for each type of security

b. To make timely payment of fees to Depository, RTA etc.

The Rule 5 of the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018 puts an obligation on Company to make a timely payment of fees to Depository and registrar to an issue and share transfer agent in accordance with the agreement executed between the parties;

c. To maintain security deposit of not less than 2 years fees of Depository etc.

Rule 5, as mentioned above, provides that the Company shall maintain 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 in such form as may be agreed between the parties.

d. To comply with the requirement of SEBI and Depository from time to time

Company is required to comply with the regulations or directions or guidelines or circulars, if any, issued by the securities and Exchange Board or Depository from time to time with respect to dematerialisation of shares of unlisted public companies and matters incidental or related thereto.

5) In case of default, Public Unlisted Company cannot issue Securities

The Rules put obligation on the Company to make timely payment of fees to Depository, RTA etc, to maintain security deposit and to comply with requirement of SEBI regulations with respect to DEMAT of Securities.

A public Unlisted Company which fails to comply with any of the provisions as mentioned in Rule 5 of the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018 shall not be eligible to make offer of any securities or buy back its securities or issue any bonus or rights shares till the payments are made to Depositories etc.

6) Certain SEBI regulations to apply to Public Unlisted Companies

While SEBI Regulations are, prima facie, not applicable to Public Unlisted Companies, w.e.f. October 2, 2018, the provisions of the Depositories Act, 1996; the securities and Exchange Board of India (Depositories and participants) Regulations, 1996 and the securities and Exchange Board of India (Registrars to an Issue and share Transfer Agents) Regulations, 1993 shall apply mutatis mutandis to dematerialisation of securities of unlisted public companies.

7) Half-year Securities Audit Report to be submitted with ROC (though no form is prescribed as of yet)

All the Public Unlisted Companies are now required to submit a half yearly securities audit report as specified in Regulation 55A of securities and Exchange Board of India (Depositories and participants) Regulations, 1996.

Way ahead for Public Unlisted Companies

1) Approach Depository and create ISIN:

Creation of ISIN is a time consuming task and generally takes 2 weeks for a Company to create an ISIN. Presently, NSDL and CDSL in India are authorised to issue ISIN.

Standard list of Documents and Charges for creation of ISIN by NSDL:

  1. Letter of intent cum Master Creation Form
  2. Certified true copies of Audited Annual Reports for last two years.
  3. Certified true copy of Memorandum of Association / Articles of Association
  4. Net Worth certificate from a Chartered Accountant
  5. Undertaking from company in the enclosed format (for private limited companies)
  6. Form PAS-3 ROC for all issues if any after the last balance sheet date. Book Value Certificate after the date of last allotment
  7. Form SH-7 if there is any variation in face value of shares or reduction in capital after the last balance sheet date

2) Approach and appoint Registrar and Transfer Agent

In addition to ISIN creation a Company will need to appoint a Registrar Transfer Agent. As of today, there are more than 50 RTAs approved by SEBI.


About Author: CS Jigar Shah is the Founder and Partner at JMJA & Associates LLP. With over 10 years of work experience in various listed companies and conglomerates, CS Jigar Shah has a rich and varied experience in his portfolio.

Disclaimer: "This material and the information contained herein are prepared by JMJA & Associates LLP, Practising Company Secretaries (JMJA) is intended to provide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). None of JMJA, its associate firms, or its members/employees is, by means of this material, rendering professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. JMJA shall not be responsible for any loss whatsoever sustained by any person who relies on this material."


Published by

CS Jigar Shah
(Company Secretary)
Category Corporate Law   Report

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