From October 2, any new share transaction in around 75,000 unlisted public companies can only take place if the shares are de-mat. As a result, all transfer of shares in these companies or fresh issue of equity can only take place if the securities have been de-materalised, a source told TOI, adding that the back-end has already been tied up. The ministry of corporate affairs (MCA) is going to issue the new norms over the next few days. Currently, these shares are held in paper or physical form.
As reported first by TOI on May 30, the original plan was to mandate de-materialisation in all unlisted public companies, but the proposal was tweaked due to legal hassles. The MCA is keen to introduce the move to bring about greater transparency in stock holding since this will force shareholders to comply with the required nor ms, helping the government track the real ownership, apart from making it easier to track shareholders.
Demat shares will not just help improve compliance with know-your-customer (KYC) norms, but will also prevent frauds by checking pledging or transfer of duplicate shares.
In June, Sebi had also tightened norms for listed companies and mandated that amendment requests for transfer of securities of listed companies will not be processed unless the securities are held in the demat form with a depository. The new rule is effective December 5, 2018.
The government and Sebi are moving in tandem to bring about greater transparency in corporate holdings and have initiated a number of steps, with demat being part of the larger exercise.
–Source Times of India