Compulsory dematerialisation of the shares of a private company

The Ministry of Corporate Affairs (“MCA”) on October 27, 2023[1] notified the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023, vide which a new rule, i.e. Rule 9B has been inserted in the existing Companies (Prospectus and Allotment of Securities) Rules, 2015 (“Allotment Rules”).

As per Rule 9B Dematerialization of shares is applicable on following private companies:

1. Which as on 31^st March 2023 has paid up capital of Rs. 4 Crore or more
2. Which as on 31^st March 2023 has Turnover of Rs. 40 Crore or more
3. Holding Company
4. Subsidiary Company
5. Section 8 Company

Due Date: 30^th September 2024

Implication: Every such company mentioned above shall not make any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer after due

or

Every holder of securities of the such private company mentioned above, who intends to transfer such securities or who subscribes to any securities of the concerned private company whether by way of private placement or bonus shares or rights offer shall comply with the provisions of dematerialization before.

In Case of default: Section 450 of the Act will apply. As per Section 450 of the Act, company and every officer of the company who is in default will be liable to a penalty of Rs. 10,000. In case of continuing contravention, with a further penalty of Rs. 1,000 for each day after the first during which the contravention continues, subject to a maximum of Rs. 2,50,000 in case of a company and Rs. 50,000 in case of an officer who is in default or any other person.