MCA Proposes Mandatory Demat Deposit Receipts of Public Companies

The Ministry of Corporate Affairs (MCA) has suggested vide notification dated June 6, 2011 that all public companies and their subsidiaries convert share certificates and bonds into an electronic (Demat) form.

The Companies (Dematerialization of Certificates) Rules, 2011, are proposed to come into force from October 1. All fresh issuances will also have to be in Demat form. The MCA has also advised to make this compulsory for all existing paper certificates by September 30.

The rules will include all public companies “which have raised money by issue of shares and debentures, by accepting public deposits, stock, bond or any other financial instruments from public,” stated the MCA circular.

Under the Companies Act, a public company is a voluntary association of members which is incorporated and, therefore, has a separate legal existence. The liability of its members is limited. It has to have at least seven shareholders.

The new circular will advance transparency and simplify transactions for both companies and investors, while making monitoring by regulatory bodies more organized.

Advantages of DEMAT:

• Safe and convenient way to hold securities
• Elimination of risks in physical form (bad delivery, fake securities, delays, thefts)
• Major reduction in paperwork
• Easy and instant transfer of securities
• No stamp duty on transfers

There are also apprehensions that 90 percent of companies are latent and will not respond to the call at such a short notice.

MCA has requested comments from all stakeholders by June 30.

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