AFTERMATHS OF NOT DEMATERIALISING SHARES BY UNLISTED PUBLIC COMPANIES

• Introduction

         The Ministry of Corporate Affairs has amended the Companies (Prospectus and Allotment of Securities) Rules, 2014 and now has inserted a new rule 9A with its applicability from 2^nd October, 2018. With the inserting of new rule it is compulsory for every unlisted Public Company to provide opportunity to every shareholder to convert their shareholding into Dematerialised form.

• Rule 9A: Issue of securities in dematerialised form by unlisted public companies.-
• Every unlisted public company shall –

    (a) issue the securities only in dematerialised form; and

    (b) facilitate dematerialisation of all its existing securities

      in accordance with provisions of the Depositories Act, 1996 and regulations made there     under.

• As the rule 9a (3) Every Security Holder of Unlisted Public Company before transferring there share on and after 2^nd October, 2018 have convert it securities only in dematerialised form
• In the same way if anyone want to subscribes to any securities of an unlisted public company (whether by way of private placement or bonus shares or rights offer) on or after 2nd October, 2018 shall dematerialised there existing security into dematerialised.
• For provide the facility to every security holder for have their securities in Demat the company will secure International security Identification Number (ISIN) for each type of security and shall in-form all its existing security holders about such facility.
• Audit Report

As per Rule 9A(8) the unlisted public company have submit there audit report in accordance of regulation 55A of the securities and Exchange Board of India (Depositories and participants) Regulations, 1996 on a half-yearly basis to the Registrar under whose jurisdiction the registered office of the company is situated.

 The Unlisted Public Company have to submit there Reconciliation of share capital audit report within 30 days from the end of the Half Year.”

• CONSEQUENCES

If the company fails to provide or secure International security Identification Number (ISIN) for each type of security or submit there Audit Report then company will be punishable according to the section 450 of the Companies Act.

As the Rule 9a does not specify any penalty or fine, so Section 450 applies. As the section specify that if no penalty/fine is prescribed in any rules or section then the Section 450 of the Companies Act will be applicable.

The company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

If the Shareholder fails to convert its share into Demat as the consequences of it they will not be able to transfer there share until and unless they convert their share into Demat.