DEMATERIALIZATION OF SHARES

 Dematerialization of shares is the process in which the physical securities such as shares, debentures, bonds, units of mutual funds etc. are converted electronically into demat form. The investor intending to convert its securities into demat form needs to open a demat account with a Depository Participant. Depository participant acts as an intermediary between the investor and the company. Holding shares in dematerialized form is exactly same like holding cash in a bank account. Just like bank, depository is responsible for holding shares on behalf of the investor. Like bank transfers money from one account to another account of the account holder, upon the instructions of the account holder, the depository does the same job. 

In India, there are two depositories registered with SEBI, those are:

  •                  NSDL (National Security Depository Limited)
  •                  CDSL (Central Depository Services (India) Limited)

 

Benefits of Dematerialization of Shares

·         Easy Transferability of shares

·         Elimination of bad deliveries

·         Less handling of Paper-work

·         Elimination of Stamp duty

·         No chance of loss of share certificates

·         Less holding charges

·         Can be managed from anywhere.

·         Elimination of Frauds


Process of Dematerialization of Shares

·       Firstly, the investor has to open a Demat Account with a Depository Participant (DP) for trading of securities or for conversion of securities as the case may be.

·       To convert the shares into Demat account, the investor has to deposit his physical share certificates along with Dematerialization Request Form (DRF) to the Depository Participant. On each share certificate “Surrender for Dematerialization” shall be written.

·     A Depository Participant (DP) is the agent of the Depository who shall deposit the DRF along with the share certificates to the Depository for conversion of shares into Demat Form.

·  The Depository shall verify the details entered into the DRF form with the share certificates. If not found in order, the DP shall return the share certificates to the investor.

·     If the details in DRF and share certificates are correct, then the Depository Participant shall process the request along with share certificates to the Company and simultaneously to the Registrar and Share Transfer Agent.

·    Once the request is approved, the physical share certificates shall be destroyed and confirmation for dematerialization shall be sent to the depository.

·    The Depository shall confirm the dematerialization of shares to the Depository Participant. Once this is done, the credit of shares held by the investor shall be reflected in investor’s account electronically.


Effective Dates for Dematerialization of Shares

·    As per SEBI guidelines, every listed company has to compulsorily convert its existing physical shares into Dematerialized Form w.e.f. 1st April, 2019.  This means that a listed company is prohibited from issuing further shares (be it right issue, bonus issue, private placement etc.) into physical form. The director, KMP, promoters who hold shares in physical form have to compulsorily convert the shares in Demat Form. No request for transfer of shares in physical form shall be processed by such listed company. Only request for transmission and transposition of shares can be processed in physical form.

·     As per Rule 9A of Companies Act, 2013, every unlisted company is required to convert its physical securities into Dematerialized Form w.e.f. 2nd October, 2018. Just like listed companies, unlisted companies shall not be allowed to issue shares in physical form. Further, the shares held by Directors, KMP, Promoters are to be converted into Demat Form before issuing further securities.

 

Applicability of PAS-6 on Unlisted Public Companies

As per the recent notification, every unlisted public company is required to convert its physical shares into Demat Form. Following are the key points:

1.        Every unlisted public company shall

                                      I.        Issue securities in dematerialized form

                                    II.        Facilitate dematerialization of all its existing securities.

  In accordance with the provisions of the Depositories Act, 1996 and the regulations     made thereunder. 

2.   Every unlisted public company making offer of fresh securities or buy-back of securities, right issue, bonus issue etc. must ensure that entire holding of the promoters, directors, KMP etc. are in dematerialized form.

3.   Every unlisted public company facilitating dematerialization of its existing securities must secure International Security Identification Number (ISIN) for each type of security and shall inform all its existing security holders about the facility.

4.    Every unlisted public company shall ensure that

                                I.        It makes timely payment of fees (admission as well as manual) to the depository and the Registrar and Share Transfer Agent. In accordance with the agreement executed between the parties.

                                        II.        It maintains security deposits at all times, of not less than Two year, fees with the depository and Registrar to an issue and Share Transfer Agent in such form as may be agreed between the parties.

                                             III.        It complies with the directions/ guidelines/ circulars/ notifications issued by SEBI and the Depositories from time to time in this regard.

5.  No unlisted public company shall issue shares, if it is in default of Sub rule (4) mentioned above.

6.   The provisions of the Depositories Act 1996 the securities and Exchange Board of India (Depositories and participants) 3 [Regulations, 2018] 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.    Every unlisted public company governed under this rule shall submit form PAS-6 to the Registrar with such fees as may be prescribed within 60 days of the conclusion of each half year duly certified by the Company Secretary in Practice or Chartered Accountant in Practice.

8.   The company shall immediately inform the depository if it finds any difference in the issued capital and the securities held in dematerialized form.

9.    The grievances, if any of the security holders shall be filed before Investor Education and Protection Fund.

 

Exceptions of Applicability of PAS-6

This rule shall not be applicable on unlisted public company which is

·         A Nidhi Company

·         A Government Company

·         A wholly Owned Subsidiary Company

 

Due date for filling PAS-6

Every unlisted public company is required to file PAS-6 within 60 days on conclusion of each half year. The due dates shall be as follows:

  •          April to September (Due Date-  29 November)
  •          October to March (Due Date- 30 May)

 

Since the form is deployed on 15th July, 2020, so all the unlisted companies are required to file form PAS-6 on or before 13th September, 2020 for half year ended 31st March, 2020. It is further clarified that on or before 13th September, unlisted companies are required to file two forms (PAS-6) both for half year ended 30th September 2019 and 31st March, 2020.

 

 

 

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