Section 29: when securities must be issued, held or transferred in demat form

Introduction

Since the Companies (Amendment) Act, 2019, the rule-making power reaches beyond public companies. The word "public" was omitted from clause (b) of sub-section (1), and a new sub-section (1A) lets the Government prescribe classes of unlisted companies whose securities must be held or transferred only in demat form. Both changes have been in force since 15 August 2019 (S.O. 2947(E)).

Section 29 itself commenced on 12 September 2013 under S.O. 2754(E). Which classes are prescribed is set out in rules, which change over time, so check the current rules before relying on any exemption.

Key takeaways

Who must issue securities in demat form

Section 29(1) applies notwithstanding anything in any other provision of the Act. Two groups must issue securities only in dematerialised form by complying with the Depositories Act, 1996 and the regulations made under it: (a) every company making a public offer, and (b) such other class or classes of companies as may be prescribed.

Before the Companies (Amendment) Act, 2019, clause (b) referred to classes of "public" companies. Section 7 of that Act omitted the word "public" with effect from 15 August 2019 (S.O. 2947(E)), so the prescribed classes may now include private companies.

• India Code — consolidated Companies Act, 2013, section 29
• eGazette — Companies (Amendment) Act, 2019 (No. 22 of 2019)
• eGazette — MCA notification S.O. 2947(E), 14 August 2019 (2019 Amendment Act provisions in force 15 August 2019)
• eGazette — MCA notification S.O. 2754(E), 12 September 2013 (commencement)

Holding and transfer by unlisted companies

Sub-section (1A), inserted by the same amendment, goes further than issue. For such classes of unlisted companies as may be prescribed, the securities must be held or transferred only in dematerialised form, in the manner laid down in the Depositories Act, 1996 and the regulations under it. In practice this affects existing physical holdings as well as new issues.

The section does not itself name the classes or set deadlines. Those are in rules made by the Central Government. This guide does not reproduce them because rule texts were not consolidated for this draft; check the current rules and any extension notified for your class of company.

Companies outside sub-section (1)

Under section 29(2), any other company may convert its securities into dematerialised form. It may also issue securities either in physical form in accordance with the Act, or in dematerialised form in accordance with the Depositories Act, 1996 and the regulations under it.

Practical preparation

Check whether the company makes a public offer or falls in a prescribed class; read the current rules for your class; obtain an ISIN and connect with the depositories through a registrar and share transfer agent where required; ask shareholders with physical certificates to open demat accounts; stop processing physical transfers once the rules require demat holding or transfer; keep the register of members reconciled with depository records.

Practical checklist

Glossary

Dematerialised form

Securities held as electronic entries with a depository under the Depositories Act, 1996, instead of paper certificates.

Public offer

An initial public offer or further public offer of securities to the public, or an offer for sale by existing holders.

Prescribed

Set out in rules made by the Central Government under the Act.

Frequently asked questions