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  • Writer's pictureEshika Thakur

Section 29 Of Companies Act 2013: Advantage And Process Of Dematerialization Of Securities

Updated: Oct 13, 2022

What is Dematerialization of Securities? –

"Securities" are those defined in Section 2 clause (h) of the Securities Contracts (Regulation) Act, 1956. (42 of 1956). Shares, scrips, stocks, bonds, debentures, debenture stock, or other marketable securities of a like type in or of any incorporated corporation or other body corporate are defined as "securities.”

Physical certificates of securities are changed into electronic form in exchange for an equivalent number of the investor's securities in the process of dematerialization. Any public business's promoters that make a public offering of convertible securities may only hold them as securities.

The promoters' initial holdings of the company's convertible securities are held until the initial public offering date. The offer is converted into dematerialized form, and the promoter's shareholding is only held in dematerialized form.

What is Section 29 of the Companies Act 2013? –

Under Indian law, shares in an unlisted firm can be kept in either physical form (as evidenced by letters of allotment/share certificates issued against them) or dematerialized form (as evidenced by opening a "Demat account" with a depository participant).

Sections 29 (1) and 29 (IA) of the Companies Act, 2013 address the issue of securities in Demat form by unlisted public companies, promoters by unlisted public companies, and the demat of all existing securities of Key Managerial Personnel or KMP, as well as actions, were taken by holders of unlisted company securities, received through a public company.

Key Changes- Public firms or classes of public corporations must issue their securities in dematerialized form as prescribed by the Central Government under Section 29 of the Act. The proposed modification removes the phrase "public" from section 29 (1)(b), making this section applies to all "other classes or classes of organizations as the central government may deem applicable."

In addition, a new section 29 (1A) has been inserted, which states that "the securities will be kept or transferred in dematerialized form only in the specified way as stipulated in The Depository Act, 1996 in the event of such class or classes of unlisted firms.

As a result, non-listed firms, whether public or private, will be forced to transfer those shares to be dematerialized in the form of government-determined shares and will be subject to the terms of the Depository Act of 1996 and its restrictions. However, the Central Government has yet to announce which of the Act's classes of corporations would be affected by this revision and the laws that will apply to them.

What are the Advantages of Dematerialization? –

Dematerialization of shares of an unlisted public company has several advantages:

  • Reduce the danger of duplication, fraud, loss, or theft of securities kept in physical share certificates and delays.

  • Transparency and investor protection should be improved.

  • Prevent fraud and the issue of backdated checks.

  • Stamp duty on share transfers should be abolished.

  • It will now be easier to transfer securities.

  • The transfer of securities will require fewer documentation.

  • It is a safer and more convenient way to store securities.

  • Facility for Nominations

  • It will lower transaction costs.

  • Transfer of securities as soon as possible

An unlisted public company must comply with the dematerialization of shares requirement –

The following requirements need to be furnished by every unlisted company:

  • They must pay their fees in a timely manner.

  • According to the agreement negotiated with the depository, registrar, and share transfer agent, they must also keep a security deposit of at least two years.

  • Unlisted Public Companies must follow the SEBI's (Securities Exchange Board of India) regulations, guidelines, and circulars as they are issued