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

[DEV KUMAR KOTHARI]

DEMAT FORM OF SECURITIES -I

COMPULSORY DEMATERILISATION OF SHARES OF LIMITED COMPANIES - RELAXATION IS DESIRED

COMPULSORY DEMATERILISATION OF SHARES OF LIMITED COMPANIES:

At present it is compulsory that shares of limited companies are to be dematerialised from physical share certificated to dematelised form. This is really not desirable in many cases like:

When company, though limited by shares and not a private limited company is factually like

Reasons related to company

  family concern or SPV of a family or small group of people.

Shareholders are not extensive and are within a group of people.

Transfer of shares are not frequent.

Costs for maintaining Dematerialisation requirements are very high and there is no purpose so far company and  its shareholders are concerned.

Reasons related to shareholders:

Not trading in shares of such companies.

Not active trader or investors.

Find physical form as easy to handle, manage and review etc.

Old aged people who are not comfortable with processes of dematerialisation of shares.

Though there is no transfer of ownership, however dematerialisation process is very tough and conditions imposed are very difficult to comply with. In fact RTA / DP are considering as case of transfer and taking hyper technical view on small differences in signature, address etc. and insisting on certification / authentication of signature and address by bankers in very strict manner.

In case of very old holdings, there are difficulties due to many reasons like change in name of company, shares numbers.

In case of small, defunct type of companies who issued shares long ago and forgot shareholders, are also acting in a manner that if on dematerialisation of shares there can be a case of fraud although the present value of shares is fraction of value at which shares were issued long ago.

Even in case of very large multinational companies problems can arise for example in case of Linde India Ltd on change of name new share certificates were not sent to shareholder. On lodgement of shares in old name these were returned back. On correspondence with company they asked to submit again share certificate in old name. However, later on dematerialisation was refused on alleged difference in signature.

Compulsory dematerialisation should be only for large companies:

Compulsory dematerialisation should be only for large companies like those having more than 10000 shareholders, more than 300 share transfers per month . In other cases dematerialisation should be at option of company.

Relaxation is desired:

In view of above and many other difficulties being faced by companies and shareholders it is desirable that condition of compulsory denaturalization  form of shares in case of limited companies should be relaxed and it should be at option of company or shareholders to choose whether to hold shares in  dematerialized form or physical form.