Mandatory Dematerialization of Shares for most of the Private Companies in India and Filing of Form PAS - 6

The Ministry of Corporate Affairs (MCA) issued a notification on October 27, 2023, mandating that Non-Small Private Companies dematerialize their shares by September 30, 2024, as per the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023.

The Ministry of Corporate Affairs (MCA) introduced this new compliance to:?

• Improve security, efficiency, and transparency in shareholding management?
• Prevent the formation of shell companies?
• Promote effective corporate governance?

The deadline for completing this process was September 30, 2024.

Exemptions

• Section 8 company, limited by guarantee
• Nidhi company
• Government company
• Small private limited companies are exempt from this requirement

Now, What is a Small company as per the Companies Act, 2013?

Small company means a company other than a public company:

• having a paid-up share capital that does not exceed 4 Crore rupees or such higher amount as may be prescribed and
• Turnover of which as per the profit and loss account for the immediately preceding financial year does not exceed 40 Crore rupees or such higher amount as may be prescribed.

Procedure

• Appoint a SEBI-registered Registrar and Share Transfer Agent (RTA)?
• Choose to dematerialize the shares with either NSDL or CDSL?
• Submit the prescribed documents with the Depository through RTA?
• Execute a Tripartite Agreement with RTA and NSDL/CDSL for Demat?

Penalties

Companies and officers who do not comply with the rule may face penalties, including:?

• Inability to issue or allot any securities?
• Shareholders being unable to sell their shares or subscribe to new ones?
• Monetary penalties for the company?
• Similar penalties for officers in default

Filing of Form PAS - 6

As per Rule 9A (8) Every Non-Small Private Company governed by this rule shall submit Form PAS-6 (Reconciliation of Share Capital?Audit Report) to the Registrar with the prescribed fees as provided in the Companies (Registration Offices and Fees) Rules,2014 within sixty days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice.

Consequences of the provision are:

• In case the Company fails to apply for ISIN or fails to file half-yearly audit report in Form PAS - 6, then the company is liable for consequences under Section 450.
• If shareholders fail to convert shares in Demat then they will not be able to transfer shares and will not be able to subscribe shares.

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