Compulsory Dematerialization Of All Securities Required By September 30, 2024 – Shareholders

The Companies (Prospectus and Allotment of
Securities) Second Amendment Rules, 2023
(“PAS Rules 2023“) were issued in
October 27, 2023, requiring mandatory dematerialisation of
all securities of every private Indian company (except
small companies) by September 30, 2024.
This obligation is also incumbent on the holders or any
securities.

In brief, Dematerialisation is the process by which
physical security certificates are converted into electronic
balances. In order to dematerialise your company’s
securities, please see below a brief process involved to be
followed by the Company and its the shareholders/security holders
with various third parties, viz. Depository Participant
(“DP“), Registrar and Transfer Agent
(“RTA“) and one or more of the
depositories in India, viz. National Securities Depository Limited
(“NSDL“) and Central Depository Services
Limited (“CDSL“).

Notes:

• Obtaining an ISIN requires submission of various documents,
  such as audited financials for the preceding year, PAN & TAN of
  the company, GST certificate, net-worth certificate, etc.




• If the shareholder does not have a PAN card, it can be applied
  for, as part of the process.

Next Steps: BTG Advaya’s in-house company
secretarial team can help you with the above process. We offer the
following support services:

• Obtaining ISIN, including support for
  engagement of RTA, drafting assistance for resolutions, collation
  and submission of requisite documents, co-ordination with the RTA,
  etc.




• Obtaining PAN for a shareholder, if needed,
  comprising collation of documents, submission with authorities, and
  correspondence.




• Support on setting up demat account, including
  co-ordination with the DPs for the shareholder.




• Support on dematerialisation of physical certificates
  to electronic forms with the DP, includes support on
  submission of DRF, liaise with the DP and the Company, etc.

Risks and consequences of non-compliance:
Please see below brief risks and consequences of not complying with
the PAS Rules, 2023.

On the Company:

• Monetary Penalty: If the Company fails to
  obtain ISIN by September 30, 2024, the Company shall be liable to a
  penalty ranging between INR 10,000 – INR 200,000, and every
  officer in default shall be liable to a penalty ranging between INR
  10,000 – INR 50,000.




• Restriction on Further Issuance: The Company
  can only issue securities in demat form with effect from October 1,
  2024, therefore, Company will not be able to issue any securities
  unless they have obtained ISIN.

On the Shareholder:

• Holding of securities and subscribing to new
  issuances: The shareholders of a private company can
  continue holding their existing securities in physical form even
  after September 30, 2024, however, from October 1, 2024, they would
  need to have a demat account to subscribe to any new security
  issuance by the Company.




• Restriction on transfer of securities: The
  shareholders cannot transfer their existing securities to any
  person, unless the shareholder itself (i.e., the seller), as well
  as the purchaser of the securities have demat accounts.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.