New issue/transfer of securities in unlisted public companies now to be only in demat form – step towards curbing benami holding/convenience of demat

MCA has inserted a new Rule 9A to Companies (Prospectus and Allotment of Securities) Rules, 2014, requiring unlisted public companies from 2nd October 2018 to issue/transfer shares only in demat form. They are also required to register with a depository and give facility to existing shareholders to convert their shares to demat form. In case of a fresh issue or buyback of securities, the subscribers need to convert their existing holding too to demat form. In case of a fresh issue, existing holdings of directors/promoters/KMPs need to be converted into demat form. Half-yearly audit of certain compliances is also required. The penal and other consequences of non-compliance are not clear or comprehensive.

The aim obviously is to detect/curb benami holdings. The convenience of shares in demat form are also many. There will however be costs and one time massive effort for compliance. Considering short notice of barely 3 weeks, it is possible that the word may not reach all such companies and there may be delayed compliance/non-compliance.

My detailed article in Firstpost on this.

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CA Jayant Thakur

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