As part of its drive against benami entities, the government on Tuesday said unlisted public companies have to compulsorily issue new shares in the demat form from October 2. The transfer of shares by these companies has to be done only in the demat or electronic form, a government release said. “The ministry of corporate affairs has taken this step as a measure for further enhancing transparency, investor protection and governance in the corporate sector,” the release said, adding that the rules related to this have been amended accordingly.
The government’s move follows the June 8 directive of market regulator Securities and Exchange Board of India (Sebi) that tightened the norms for listed companies. The Sebi notification mandated that all transfer of securities in listed companies after December 5, 2018, be permitted only in the dematerialised form.
“Certain rules proposed to be made effective from October 2… These oblige public companies to facilitate dematerialisation of their securities by completing necessary formalities with a depository, and informing all securities’ holders of this matter,” Sameer Sah, associate partner, Khaitan & Co, said.
“For the existing holders in public unlisted companies, any transfer of securities after October 2 can only be done if such securities are dematerialised… Each public firm must ensure promoters, directors and KMP have dematerialised their securities before the firm can issue securities, bonus shares, start a buyback offer, etc,” he added.
Listing down the major benefits of dematerialisation of securities now available to unlisted public firms, the ministry said it will eliminate the risks associated with physical certificates such as loss, theft, mutilation and fraud. Further, the ministry said the decision will improve “corporate governance system by increasing transparency and preventing malpractices such as benami shareholding and back-dated issuance of shares”. It will also help facilitate transfer and pledging of securities, apart from exemption from payment of stamp duty on transfer, it said.
“Unlisted public companies are expected to facilitate dematerialisation of their securities in coordination with depositories and share transfer agents,” it said, adding that any grievances arising out of dematerialisation of securities will be handled by the Investor Education and Protection Fund (IEPF) Authority.