Procedure of Dematerialization of shares

                          

Procedure of Dematerialization of shares

1. It is a process of getting your share physical certificate into electronic format which is maintained in an account, known as the demat account with the depository participant (DP), who is basically an agent between the company and the depository.
2. Company to amend AOA, thereby allowing to issue shares in dematerialised form.
3. Private companies should register with both the central depositories i.e., National Securities Depository Limited (NSDL) and Central Securities Depository Limited (CDSL).
4. If registration is successful depositories will be providing companies with an International Securities Identification Number (ISIN) for each of the shares.

“ISIN” is a unique 12 digit alphanumeric code given to a security, shares, Debentures, Bonds etc. when the security is admitted in the depository system. First two digits of the ISIN code indicate country of registration for the security. For all securities registered on depository in India, first two digits of the ISIN code are ‘IN’.

If the company wants to transfer its dematerialized shares, it may arrange demat connectivity from depositories like NSDL or CDSL along with a Registrar and Transfer Agent (RTA) by entering into a tripartite agreement between the company, the depositories and the transfer agent.

“RTA” i.e. Registrar and Transfer Agent is an agent of the issuer. RTA act as an intermediary between the issuer and depository for providing services such as Dematerialization, Rematerialisation, Initial Public Offers and Corporate actions.

• Step1: Beneficiary Owner (BO) has to open a demat account with a Depository participant (DP) and obtain an account number.
  
  Procedures laid down by depositories like NSDL and CDSL to be followed, if the company wants to dematerialize its physical shares
  
• Step 2: BO need to fill in a Demat Request Form (DRF) and submit the same with the physical certificate/s to the depository participants for dematerialization. For each ISIN, a separate DRF has to be used. If the BO has free as well as lock-in shares of the same ISIN, separate demat request has to be set up for free shares and lock-in shares.
  
• Step3: DP would verify that the DRF has been filled correctly.
  
• Step 4: DP would setup a demat request on the CDSL or NSDL system and send the same to the Company and the Registrar and Transfer Agent.
  
• Step 5: Issuer/ Registrar and Transfer Agent (RTA) would verifies the genuineness of the certificates and confirms the request.

• Step 6: Once the request has been successfully made, DP would deface and mutilate the physical certificates, generate a Demat Request Number (DRN) and send an electronic communication to the depository and courier the DRF and the share certificate to the company by courier.
  
• Step 7: On receiving confirmation, depository will credit an equivalent number of securities in the demat account of the BO maintained with CDSL or NSDL.
  
• Step 8: The depository will electronically download the details of the demat request and communicate the same to the electronic registry maintained by the Registrar of Companies.

Transfer of shares by an individual in dematerialized form:

• A shareholder who wants to dematerialise his shares needs to open a demat account with Depository Participant (DP), and surrender his physical shares.
• If a shareholder who wants to transfer shares to the demat account of another can transfer by issuing appropriate instructions to the concerned depository participant through Delivery Instruction Slip (DIS) which will be issued by the DP. The delivery instruction slip is a book similar to a cheque book and an investor is supposed to handle it with the same care as a cheque book.
• If an investor wants to transfer securities through the stock exchange, he/she has to instruct the DP to transfer shares from his demat account to the brokers’ pool account.
• In case he wants to transfer shares to any other buyer`s demat account, i.e., an off market transaction, he will have to instruct his DP to transfer to the concerned buyer’s demat account. Similarly, securities can be transferred to the buyers demat account by the instruction of the seller (transferor) to his concerned DP. The seller is supposed mention investor`s demat account number in the DIS.
• It is important to note that RTA has to confirm from the company before approving the transfer. Company approval is necessary and then only RTA shall register a transfer in the demat mode.

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CS RAVI GARG  

91-7838204665, 

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Applicability of Section 186 of Companies Act, 2013

 1. Applicability of Section

A) The Sub Section (1) of Section 186 is applicable on all Companies either private Companies or public Companies.

B) Considering the Sub Section (11) of Section 186 of the Act, whole section except sub section (1) shall be applicable on Private Company as well as Public company also.

2. Non Applicability of Section

Sec 186(11) except  Subsection 1

(a) a banking company or an insurance company or a housing finance company in the ordinary course of its business or a company engaged in the business of financing of companies or of

providing infrastructural facilities;

(b) Any company whose principal business of acquisition of shares or securities etc

Important Amendment: By Company (Removal of Difficulty) Order, 2015

Sec 186(11)(b)(iv ) Acquisition made by a banking company or an insurance company or a housing finance company, making acquisition of securities in the ordinary course of its business.”. 

Reason of Amendment:  in clause (b) of sub-section (11) of section 186, in the absence of provisions for exemption to a banking company or an insurance company or a housing finance company making acquisition of securities in its ordinary course of business, a difficulty has arisen that such companies cannot make any acquisition of securities in their ordinary course of business; 

3. Meaning of Person used in the Section:

Word ‘Person’ has not been defined in the Act. Section 2(42) of General Clauses Act 1897 provides that ‘Person’ shall include any company, association or body of individuals, whether incorporated or not.

Whether loans to employees are also covered under the Section?

Ref: CAclubIndia
Section 186 is applicable to loans to ‘any person’ or other body corporate. ‘Any person’ will include employees also. Hence loans to employees will also be covered under the Section. This has created practical difficulty in implementation and MCA is expected to come out with some relief in such cases.

4-      Meaning of layers

(d) “layer” in relation to a holding company means its subsidiary or subsidiaries; (Explanation (d) of Section 2 (87))

5- Investment (u/s 186 (1))

It means a company may not make investment its money more than Two Layer. The limit has been fixed. It is showing a good sign for transparency.

6-      Investment not affects (Proviso of section 186(1))

The provisions of Section 186 (1) shall not be make compulsion on following cases:- 

  

1- A company acquires any company which is incorporated outside India. Such company has Investment Subsidiary beyond Two layers as per the law of host country.

2- A subsidiary company from having any investment subsidiary for the purpose of meeting of the requirement under any law framed under any law for the time being in force.

7-      Limits for Investment and Guarantee (u/s 186(2) )

The Limit is fixed in the Section 186(2), that 60% of Paid up capital + Free Reserve + Security Premium or 100% of Free Reserve + Security Premium (whichever is More). In this Section, the company cannot give loan, guarantee or provide any security or acquisition as per fixed limit. This sub section restricts within limit.

8-      Approvals for Investment and Guarantee etc (u/s 186 (3))

The Sub section (2) of Section 186 makes restriction, but Section 186(3), gives power to the company, that it may  give loan, guarantee or provide any security or acquisition beyond the limit but before taking prior approval from Shareholder in the General Meeting.

It means once we need to take approval from Shareholder in the General Meeting, thereafter we may make investment beyond the limit.

9. Whether the Board can delegate its powers under the Section?

 Section 179(3) authorizes the Board to delegate its powers to enter into above specified transactions to any committee of directors, the managing director, the manager or any other principal officer of the company or in the case of a branch office of the company, the principal officer of the branch office. However, Section 186 requires consent of all directors present in the meeting for approving such transactions. There seems to be a conflict between Section 186 and Section 173 on this issue. However, applying the principle of harmonious construction it can be said that Board can delegate its powers with the consent of all directors present in the meeting.

10-     Approvals of  Board and Public Financial Institutional u/s 186 (5))

The company must take 100% consent from Board to give loan and guarantee and provided security. In case of Company has already taken loan etc from any financial institutions, banks etc. Then, it is mandatory to take prior approval also from public Financial Institution, banks etc.

The approval from Public Financial Institution shall not be required where the company has not been make default to pay interest and comply the limits and provisions of section (186 (2))

11-    Maintaining Register (u/s 186 (9 and 10))

The Company shall must maintain a Register under this section and it shall be kept at the Registered office of the Company which shall be prescribed.

This register shall be opened for inspection and in case of any member, if demand its extract, the company shall provide them as per prescribed fee.

12- What is the Penalty Prescribed in the Section?

For Company:-

If company contravenes this provision, the company shall be penalized with fine which shall not be less than Rs. 25000/- but which may extend to Rs. 5 lacs.

For Officers:-

Every officer of the Company who is default shall be punishable with imprisonment for a term which may extend to Two Years and find which shall not be less than Rs. 25000/- but which  may extend to Rs. 5 lacs.

Comment for any other Clarification:

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RAVI GARG (CS)     

91-7838204665, 

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Difference Between NSDL and CDSL

What is CDSL?

CDSL's demat services are extended through its agents called Depository Participants(DP). The DP is the link between the investor and CDSL. An investor who opens a demat account with a DP can utilise the services offered by CDSL. While the DP processes the instructions of the investor , the account and records thereof is maintained with CDSL. A DP is thus a "Point of Service" for the investor.

DSL is a depository that holds securities in dematerialized form and facilitates trading and settlement of securities to be processed by book entry. It is the second largest central depository of securities in India, based in Mumbai, Maharashtra. The depository began its operations in February 1999. It is promoted by Bombay Stock Exchange in association with prominent banks of the nation, i.e. State Bank of India, Union Bank of India, Bank of Baroda, Bank of India, Standard Chartered Bank.

Securities available for demat includes equity, debentures, bonds, commercial papers, government securities, certificate of deposit, mutual funds and so on. The total number of client accounts in CDSL is over 1.06 crores as on Feb 2016. There are 581 depository participants and 161 branches.

What is NSDL?

NSDL is the primary electronic depository of securities in India, that came into existence in the year 1996, based in Mumbai, Maharashtra. The promotion of NSDL is done by the country’s largest banks and institutions, i.e. IDBI, UTI and Bombay Stock Exchange. Further, India’s leading banks hold a stake in NSDL.

There are more than 1.4 crore active investor’s accounts and above nine lacs accounts having debt instruments in NSDL. There are around 26000 service centres covering 1900 (approx) cities. Demat custody includes shares, debenture, bonds, commercial papers and so on.

Basic services provided by NSDL include account maintenance, settlement of trade, dematerialization, rematerialization. It also facilitates off-market transfers and inter-depository transfers, pledge and hypothecation of securities, stock lending and so on.

Key Differences Between NSDL and CDSL

1.  NSDL is the pioneer electronic depository of securities, established in India. On the other hand, CDSL is the second central depository of securities which facilitates book entry transfer of securities.

2. When it comes to promotion, NSDL is promoted by India’s apex institutions like IDBI (Industrial Development Bank of India), UTI (Unit Trust of  India) and NSE (National Stock Exchange) whereas CDSL is promoted by Bombay Stock Exchange in association with Bank of Baroda, State Bank  of India, Housing Development Finance Corporation, Union Bank of India, Standard Chartered Bank.

3. NSDL operates in the NSE. Conversely, CDSL operates in BSE.

4. Account wise, the active investor accounts in NSDL are comparatively higher than in CDSL.

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RAVI GARG (CS)     

91-7838204665, 

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Condonation of Delay for not filing Form MGT-14

Draft Documents For Condonation of Delay For not filing Form MGT-14 in prescribed time

(Suo moto application for condonation of delay in filing of E-Form MGT-14 under section 460 (b) of the Companies Act,2013. )

 

DRAFT FORMAT

Date : 

To

The Secretary,

Ministry of corporate affairs,

Shastri Bhawan, New Delhi 

Subject – Suo moto application for condonation of delay in filing of E-Form MGT-14 under section 460 (b) of the Companies Act,2013.  

(Reference – Purpose 

With reference to the above subject, we hereby submit as under:- 

1.      Details of applicant – The Company M/s ……………, was originally registered on 09/09/1970 under the Companies Act, 1956 vide CIN.............. The registered office of the company is situated at............... The authorized capital of the company is INR .................... (...................... only) divided into ..................../- ( .................thousand) equity shares of INR 10 (Ten) each and the paid up share capital of the company is INR 2..................(.......................only) divided into ...................Equity shares of INR 10 (Ten ) each.

 

The objects of the Company are set out in clause III A of the Memorandum of Association of the Company annexed as an annexure I.

 2.     Jurisdiction – Condonation of delay under section 460, Notwithstanding anything contained in this Act, 2013

(a) Where any application required to be made to the Central Government under any provision of this Act in respect of any matter is not made within the time specified therein, that Government may, for reasons to be recorded in writing, condone the delay; and

(b) Where any document required to be filed with the Registrar under any provision of this Act is not filed within the time specified therein, the Central Government may, for reasons to be recorded in writing, condone the delay.

That the applicant declares that the Central Government has jurisdiction to entertain this application under section 460 (b) of the Companies Act, 2013. 

 3.      Facts of the case – The applicant Company hereby state that it had passed the Resolutions under section 196 read with rules made there under and other applicable provisions of the Companies act 2013 in its board meeting held on May, 22, 2014and Extra Ordinary General Meeting held on June 16, 2014 for Re-appointment of Mr. ........(DIN:’) as Managing Director of the Company with effect from May 22,2014 for a period of five years.

As per section 117 read with rules made there under and other applicable provisions of the Companies Act 2013, a board resolution is required to be filed in E-form MGT-14 within 30 days with normal fees and within 300 days with additional fees i.e. on or before March 19, 2015. Also as per section 196, a return in prescribed form MR-1 is also required to be filed within 60 days of such appointment i.e, on or before August 14, 2014 but the company could not file said E forms i.e, MGT-14 and MR-1 in prescribed time.

 The copy of resolutions annexed with this application as an annexure – II. 

4.     Reason – The non-filing of resolutions in E-form MGT-14 and MR-1 occasioned due to the reason that the assignment of filing the said forms was given to an external consultant, who could not file the same due to his pre-occupations elsewhere. Further at that time the company had no full time company secretary in employment who could do the compliances well in time and co-ordinate with the management and external consultant of the company with respect to such timely filings. The default came into notice of the Company when the management was doing due diligence of the records of the Company.

 Further in this regard it is stated that the alleged offence of delay in filing of E-forms MGT-14 and MR-1 was committed due to inadvertence that it was without any willful or mala fide motive and was purely unintentional.

5.      Relief Sought – That the non-compliance of the provisions of section 196 read with rules made there under and other applicable provisions of the Companies act 2013 for Non filing of E-form in MR 1 and for non-filing of resolutions passed under 117 of the Companies Act, 2013 in MGT-14 be condoned as the company never had any mala fide intentions.

For ………………. Limited

 

Director

 

LIST OF ENCLOSURES

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S. No.                   PARTICULARS                                                                            ANNEXURE NO.

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1.   Copy of the Memorandum and Articles of association of the Company  I    
2.   Copy of Resolutions for ..........................................................................................         II

3.   Copy of Board Resolution authorizing M/s ...................................................., III

Companies Secretaries to represent the Company.................................      

 

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Thanks & Regards

RAVI GARG (CS)    

91-7838204665, 

 

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