Relaxation from compulsory dematerialisation and extension of last date is desirable

[DEV KUMAR KOTHARI]

Relaxation from compulsory  dematerialisation and extension of last date is desirable

Transfer of physical shares from present joint holders to any of them or any other family members should be allowed instead of forcing compulsory dematerialisation of shares.

Earlier article:

DEMAT FORM OF SECURITIES -I COMPULSORY DEMATERILISATION OF SHARES OF LIMITED COMPANIES - RELAXATION IS DESIRED

Process of dematerialization is not easy for general investors:

It is very time consuming and costly affair to take all steps required for converting physical securities into dematerlised securities by making necessary arrangements for KYC with banks, have PAN and address proof, prepare Demat Request Form and other forms required to be filed.

Dead line for dematerialisation of shares:

31.03.2023 is dead line or last date for dematerialisation of physical shares held in any limited company. After that company or its RTA (Registrars and Transfer Agents)  will not be able to work upon for transfer of shares in physical form even for dematerialisation.

Shareholders not having account with DP (depositary Participant):

There are many small shareholders who are holding shares in physical form for last long period. Many shares are held in joint names of family members.

For dematerialisation of shares  it is required to have DP account in names of all  joint holders. Relaxation has been provided only  for change in sequence of joint holders but not when any of joint holder is not a joint holder in DP account.

For example, suppose physical shares are held in names of A,B and C.

Shares can be sent for dematerialisation only if A,B,C are joint holder in DP also. The orders of name can be different. For example , even if DP account is in names of C,B,A  shares can be sent for dematerialisation by making a request for demat in  Demat request form  by all joint shareholders for changes in serial numbers of joint holders.

However if in  DP account, if    any of joint holder of physical shares is not a joint holder in DP then it is necessary  to open a joint account with DP with all joint holders.

Suppose in DP  three joint holders are A,B and C but physical shares are held in two names say A and B, or A and C or B and C. Then also such shares cannot be sent for demat in DP account of A,B, and C.

This should be permitted by allowing deletion of any of joint holder.

When name of deceased joint shareholder is allowed to be deleted on request of remaining / living share holders, on request their request and furnishing of death certificate of deceased joint holder by other holders. Suppose A and B are joint holders. A has died, then B can apply for deletion of name of A and then shares will be in single name of A which he can get dematerialised in his DP account.

There is no logic to deny deletion of name of any joint holder even if all shareholders make a request or execute transfer deed as transferor and other (s) joint holder (S) to get shares dematerialized.

Therefore,   shares are not allowed to be transferred in physical form in  name of some of joint holders without first  opening a Demat account in name of all joint holders and then from demat account of all joint holders a transfer can be made to anyone as transferee.

This is causing lot of harassment.

Only transmission is allowed in case any joint holder in physical shares has died then application for deleting name of deceased  joint holder can be made and then dematerialisation can be south by joint holders or single holder if there is DP account in their / his  name (s).

 Joint holding – in case of old issues shares:

There was time when  allotment of shares in public issue was considered as matter of luck because many of companies having no back ground of company and its promoter were traded at premium in grey market and were expected to be   listed  and traded at high premium.  Therefore, to increase chances of allotment , applicants used to make multiple applications  in different combination of names of family members and also with more than one address. It was considered that even if allotment is received even in few applications there can be good gains.

Many of companies and group of companies who issued shares were traded at premium, but subsequently many of them have faced troubles, and have been suspended or delisted. Now shares of many of such companies are not traded but they need to be dematerialized.

If a joint holder has died, his name can be deleted from holders on application in prescribed form with notarised true copy of death certificate. However, in case of living joint holders, there name cannot be dropped either through process of request to drop name of some of joint holders or by way of transfer deed because transfer deed is not acceptable and one has to open demat account with DP for transfer of shares.

This is causing lot of problems  and many shares may not be dematted because old  aged and sick  joint holders are  not able and / or are  not willing to have formalities to open bank account and Account with DP just to have some shares dematerialised.

Furthermore, many of joint holders are not living at the same place, due to this also it is difficult to open new accounts with DP.

Therefore, for small holders who held shares in personal names of many persons should be allowed to get shares transferred suitably in one or more names in which they have an account with DP.

Therefore, it is requested to concerned authorities including SEBI to consider practical difficulties  of  small shareholders having shares in physical form. They may  be allowed to hold securities in  physical form or transfer shares in physical form amongst joint holders and with family members.

In case of senior citizens exemption can be extended .

However, KYC Compliances must be completed so that present name, description, address, bank account details with AADHAR card is updated.

Requirement of  PAN should be dispensed with because many of shareholders  have no PAN account and there is no requirement for having a PAN. If all such persons obtain PAN, then there will be large number of PAN holders who will not file a Return of Income and then department will consider them as non filer.

Furthermore mandatory PAN for holder of securities of limited companies is not conducive to investment because this makes many persons ineligible to invest, who are otherwise eligible to make investment and have funds to make investments.

Need to take practical view :

A practical view is required to provide ease of doing investment in shares by small investors also with option to hold shares in physical mode.

Date of compulsory dematerialisation should also be extended.

Discussions to this article

[Dhirender Sardana]

Is there any extensions in date beyond 1st April 23 ?

[DEV KUMAR KOTHARI]

Vide Circular - SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/37 March 16, 2023 DATE HAS BEEN EXTENDED FROM 01.04.2023 TO 01.10.2023 YOU CAN SEE AT LINK

SEE PARA5

5.1. The folios wherein any one of the cited document/details as in para – 4 above are not available on or after October 01, 2023, shall be frozen by the RTA.