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Mandatory dematerialization

MANDATORY DEMATERIALISATION OF SECURITIES BY UNLISTED PUBLIC COMPANIES UNDER THE COMPANIES ACT 2013

12 Sep,2018

Description

MCA has made it mandatory for the unlisted public companies to issue the securities in dematerialised Form and facilitate dematerialization of all its existing securities. MCA vide notification dated 10.09.2018 has notified the Companies ( Prospectus and Allotment of Securities) Third Amendment Rules, 2018 which provide for this change.

Towards this it is important to understand the meaning of securities and the meaning of public company to understand the applicability of this notification.

The term SECURITIES has been defined under The Companies Act, 2013 as well as under the Securities Contracts (Regulation) Act, 1956 .

Section 2 (81) of the Companies Act, 2013 define the term as : "securities" means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

As we understand that the complete definition has been provided in the Securities Contracts (Regulation) Act, 1956 therefore it is pertinent to note the same here for getting a complete overview of the term.

Clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) which provides that (h) “securities” include

(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

(ia) derivative;

(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;] 14

(ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;]

(id) units or any other such instrument issued to the investors under any mutual fund scheme;]

EXCEPTIONS :

For the removal of doubts, it is hereby declared that "securities" shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer referred to in clause (9) of section 2 of the Insurance Act, 1938 (4 of 1938)

(ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be;]

(ii) Government securities;

(iia) such other instruments as may be declared. 19 by the Central Government to be securities; and]

(iii) rights or interest in securities;

Definition of Public Companies :

As per section 2(71) of the companies Act " Public Company" means a company which:-

(a) is not a private company and

(b) has a minimum paid-up share capital as may be prescribed.

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles

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