Recent MCA Notification for compulsory demat of securities for not Small Cos. has created uncertainties for few Cos./group cos. Following are some practical situations (for few of my clients) & observations:
1. Co. was subsidiary of Foreign Co. at the time of incorporation but recently due to issue of securities/ shares & transfer, it is no longer a Subsidiary Co. e-Form Mgt 7A was filed, but the CIN has reference of FTC. It ought to have been PTC. When was the Co. a Small Co.?
2. What about issue of shares & securities during April to September 2023 – how will provisions of Notifications be applicable?
3. In case process for offer of securities is complete, but allotment is yet to done in a board meeting? Whether demat to be done now or later ? Offer of securities made prior of October 27. Allotment will be in November first week. This is an issue because Govt. Notification is effective immediately.
4. In case of transfer of equity shares, between a person resident in India and person resident outside India, the agenda is proposed to be discussed in November 2023 board meeting. Whether dematerialisation required then? this is an issue because Govt. Notification is effective immediately.
5. Observation – provisions relate of ‘securities’ and not just shares.
6. Unlisted Public Cos. which are wholly owned subsidiary Cos. are exempted from compliance, but Private Cos. which are wholly owned subsidiary Cos. are not exempted from said compliance. In my view, Govt. should exempt such class of Cos., as well.
7. Section 8 Cos. which are Public & Private companies & with share capital – have to comply with the provisions of compulsory demat. But Section 8 Cos. which are Public & Private companies & without share capital – provisions are not applicable. Obviously, as shares/ securities are not there.
8. For a closely-held section 8 Co. (Pvt. Co. by its constitution), compulsory demat is applicable. High recurring cost for such Cos.
MCA should exempt such Cos. from this compliance.