Tag Archives: demat

purchase of minority shareholdings

MCA has vide its notification dated 17th December, 2020 amended the Companies (Compromises, Arrangements & Amalgamations) Rules, 2016 as follows. It has introduced a new rule 26A specifying the procedures to be followed in the case of purchase of minority shareholding held in demat form. Read on.

  1. The company shall within two weeks of the receipt of amount equal to the price of shares to be acquired by the acquirer verify details of the shareholders holding shares in demat form;
  2. After verification as above, the company has to send notice to the shareholder (via speedpost/ courier/ e-mail/ registered post) informing him of the purchase of his shares in the company and giving a one month cut off (from the date of sending the notice) after which the shares shall be debited from his demat account and credited to the demat account of the company (designated demat account of the company);
  3. The notice as above should also be published in two widely circulated newspapers in the district where the registered office of the company is situated and also uploaded on the website of the company, if any.
  4. The company has to inform the depository after the notice has been published and also give some undertakings such as : corporate action under section 236, that the minority shareholders have been intimated, that the minority shareholders shall be paid by the company immediately after completion of corporate action and that any dispute or complaints shall be settled by the company;
  5. The Board has to authorise the company secretary or any other official for effecting transfer of shares through corporate action, to make necessary disclosures to the depository and to submit whatever documents required in this regard;
  6. The depository, upon receipt of the information as above from the company, make necessary transfer of shares from the demat account of the minority shareholder to the designated demat account of the company, unless some shareholders have made direct transaction with the acquirer in this regard. Post that they have to intimate the company accordingly;
  7. Once the intimation has been received by the company from the depository as above, they shall immediately disburse the amount into the bank account of the minority shareholders. The stamp duty on the transfers as above, has to be paid by the company itself;
  8. After the payment is made as above to the minority shareholders, the company shall intimate the same to the depository who shall then transfer the shares from the designated demat account of the company to the demat account of the acquirer;
  9. The above rules shall not apply if there is a specific order of the court or tribunal staying the transfer of any shares or payment of dividend or where the shares are pledged or hypothecated – in such case the shares shall not be transferred to the designated demat account of the company.
  10. Earlier in the definition clause “corporate action” has been defined to mean any action taken by the company relating to transfer of shares and all benefits accruing from transfer of such shares viz. bonus shares, split, consolidation, fraction shares and rights issue to the acquirer.
  11. The copy of the said notification can be found at the MCA site viz. http://www.mca.gov.in

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transfer & demat of re-lodged physical shares

SEBI circular dated 2nd December, 2020 on the subject, which is self explanatory:

1. SEBI, vide circular no. SEBI/HO/MIRSD/RTAMB/CIR/P/2020/166 dated September 07, 2020, has fixed March 31, 2021 as the cut-off date for re-lodgment of transfer requests and has stipulated that such transferred shares shall be issued only in demat mode.

2. In this regard the operational guidelines for crediting the transferred shares into the respective demat account of the investor, with inputs from stakeholders, are as under;

i. Guidelines to credit the transferred physical shares in demat mode:

a. Subsequent to processing of the re-lodged transfer request, the RTA shall retain the physical shares and intimate the investor (transferee) about the execution of transfer through Letter of Confirmation. This letter shall be sent through Registered / Speed Post or through email with digitally signed letter and shall, inter-alia, contain details of endorsement, shares, folio of investor (required on Demat request form) as available on the physical shares.

b. The investor shall submit the demat request, within 90 days of issue of Letter of Confirmation, to Depository participant (DP) along with the Letter of Confirmation. RTA shall also issue a reminder at the end of 60 days of issue of Letter of Confirmation, informing the investor to submit the demat request as above.

c. Depository Participant will process the Demat Request on the basis of Letter of Confirmation, as this letter is a confirmation of holding of physical shares on behalf of the investor by RTA.

d. The suggested format of the Letter of Confirmation is given at Annexure – A.

ii. In case of the shares that are required to be locked-in as per the SEBI Circular SEBI/ HO/ MIRSD/ DOS3/ CIR/P/2018/139, dated November 06, 2018, the RTA while approving / confirming the demat request, shall also incorporate / intimate the Depository about the lock-in and its period. Such shares shall be in lock-in demat mode for 6 months from the date of registration of transfer.

iii. In case of non-receipt of demat request from the investor within 90 days of the date of Letter of Confirmation, the shares will be credited to Suspense Escrow Demat Account of the Company.

3. Depositories shall;

a) make necessary amendments to the relevant byelaws, rules and regulations for the implementation of the above directions, as may be applicable; and

b) bring the provisions of this circular to the notice of their participants and also disseminate the same on their websites.

https://www.sebi.gov.in/legal/circulars/dec-2020/operational-guidelines-for-transfer-and-dematerialization-of-re-lodged-physical-shares_48336.html

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re-lodgement of transfer requests

SEBI circular dated 7th September, 2020 regarding allowing more time for re-lodgement of physical transfer of shares which was rejected/ returned due to deficiency of documents. Now they can be relodged upto 31st March, 2021.

  1. In terms of Regulation 40 (1) of SEBI (Listing Obligations and Disclosure
    Requirements) Regulations, 2015, transfer of securities held in physical mode has been discontinued w.e.f. April 01, 2019. Subsequently, vide Press Release No. 12/2019 dated March 27, 2019, it was clarified that transfer deeds lodged prior to deadline of April 01, 2019 and rejected / returned due to deficiency in the documents may be re-lodged with requisite documents.
  2. It has been decided to fix March 31, 2021 as the cut-off date for re-lodgement of transfer deeds. Further, the shares that are re-lodged for transfer (including those request that are pending with the listed company / RTA, as on date) shall henceforth be issued only in demat mode.

https://www.sebi.gov.in/legal/circulars/sep-2020/re-lodgement-of-transfer-requests-shares_47500.html

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POA – stock brokers

SEBI has issued an important circular dated 27th August, 2020 giving clarifications regarding execution of a power of attorney by clients in favour of stock brokers and depository participants. Gist of the circular is given below:

  1. SEBI, vide circular no. CIR/MRD/DMS/13/2010 dated April 23, 2010, issued
    Guidelines for execution of Power of Attorney (PoA) by the client favouring Stock Broker / Stock Broker and Depository Participant (hereinafter referred to as “Guidelines”). Certain clarifications were issued later vide circular no. CIR/MRD/DMS/28/2010 dated August 31, 2010.
  2. Paragraph 5 of the circular dated April 23, 2010, specifies the following:
    “Standardizing the norms for PoA must not be construed as making the PoA a condition precedent or mandatory for availing broking or depository participant services. PoA is merely an option available to the client for instructing his broker or depository participant to facilitate the delivery of shares and pay-in/pay-out of funds etc. No stock broker or depository participant shall deny services to the client if the client refuses to execute a PoA in their favour.”
  3. Further, paragraph 12 – 20 of the Guidelines in SEBI circular dated April 23, 2010, also specifies that the PoA shall not facilitate the stock broker to do the following:
    3.1.Transfer of securities for off market trades.
    3.2.Transfer of funds from the bank account(s) of the Clients for trades executed by the clients through another stock broker.
    3.3.Open a broking / trading facility with any stock broker or for opening a Beneficial Owner account with any Depository Participant.
    3.4.Execute trades in the name of the client(s) without the client(s) consent.
    3.5.Prohibit issue of Delivery Instruction Slips (DIS) to beneficial owner (client).
    3.6.Prohibit client(s) from operating the account.
    3.7.Merging of balances (dues) under various accounts to nullify debit in any other account.
    3.8.Open an email ID / email account on behalf of the client(s) for receiving statement of transactions, bills, contract notes etc. from stock broker /depository participant.
    3.9.Renounce liability for any loss or claim that may arise due to any blocking of funds that may be erroneously instructed by the stock broker to the designated bank.
  4. However, it has been observed that PoA is invariably obtained from the investors as part of the KYC and account opening process. Such PoA executed by clients has further found to have been misused by the stock brokers by taking authorization even for activities as specified in paragraph 3 above. In this regard, it is reiterated that:
    4.1.PoA is optional and should not be insisted upon by the stock broker / stock broker depository participant for opening of the client account.
    4.2.PoA executed in favour of stock broker / stock broker depository participant by the client shall be utilized
    4.2.1.For transfer of securities held in the beneficial owner accounts of the client towards Stock Exchange related deliveries / settlement obligations arising out of trades executed by clients on the Stock Exchange through the same stock broker.
    4.2.2.For pledging / re-pledging of securities in favour of trading member (TM) / clearing member (CM) for the purpose of meeting margin requirements of the clients in connection with the trades executed by the clients on the Stock Exchange.
    4.2.3.For the limited purposes as specified in paragraph 1(iii) and 2 of the
    Guidelines.
    4.3.Paragraph 1(i) and 1(ii) of the Guidelines stands modified in accordance with paragraph 4.2.1 and 4.2.2 above. Stock Exchanges and Depositories shall ensure that PoA is not used by TM/CM/DPs for any purpose other than as specified above and in SEBI circulars dated April 23, 2010 read with SEBI circular dated August 31, 2010.
  5. It has also been decided that all off-market transfer of securities shall be permitted by the Depositories only by execution of Physical Delivery Instruction Slip (DIS) duly signed by the client himself or by way of electronic DIS. The Depositories shall also put in place a system of obtaining client’s consent through One Time Password (OTP) for such off market transfer of securities from client’s demat account.
  6. All other provisions specified in SEBI circular dated April 23, 2010 read with SEBI circular dated August 31, 2010 shall continue to remain applicable. The circular shall be applicable with effect from November 01, 2020.
  7. Stock Exchanges and Depositories are directed to
    7.1. make necessary amendments to the relevant Bye-laws, Rules and
    Regulations for the implementation of the above decision;
    7.2. bring the provisions of this circular to the notice of their members /
    participants and also disseminate the same on their websites; and
    7.3. communicate to SEBI, the status of implementation of the provisions of this circular in their monthly report.

https://www.sebi.gov.in/legal/circulars/aug-2020/execution-of-power-of-attorney-poa-by-the-client-in-favour-of-the-stock-broker-stock-broker-and-depository-participant_47423.html

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misuse of clients’ securities

SEBI press release dated 13th february 2020

In the recent past years, it has been observed that some brokers have misused clients’ securities received as collateral to meet their own settlement obligation or obligations of other clients.  Some brokers have also misused clients’ securities by pledging them with the banks and NBFCs to raise funds for their own use. Though the Depositories Act provides for acceptance of client securities as collateral by way of pledge, the collateral of securities is accepted by way of title transfer of securities by brokers.  The client providing collateral in the form of securities needs to transfer his securities in the name of the broker and once the securities move out of the demat account of the client, it is not possible for him to keep a track of use/ misuse of those securities by the broker.

A few brokers have been declared defaulter by the Exchange not on account of failure to meet settlement obligation but in failing to meet liabilities/ dues to the clients.  The available assets of the broker were found short to meet the clients’ funds and securities obligations.  In order to prevent the misuse of clients’ securities by broker, SEBI has taken a number of policy measures including laying down early warning mechanism to detect diversion of clients’ funds and securities, restricting broker to pledge clients’ securities even with the consent of the client, securities to be transferred to Client account or Client Unpaid Securities Account (CUSA) within 24 hours of payout, mapping of Unique Client Code with demat account of the client to detect diversion of payout of securities.  SEBI has also directed Clearing Corporations to share client level pay-in and pay-out obligations with Depositories, and Depositories are required to check the corresponding debit or credit in the demat account of client and report mismatches to the Exchanges. This has detected the diversion of clients’ securities received in payout.

SEBI has developed an in – house online system by which it would be able to prepare client level securities holding register of the brokers. SEBI collects the details of the clients’ securities submitted in weekly report filed by brokers with the Exchanges and updates the same with trades conducted in the accounts of said clients using the data available with SEBI in DWBIS as well as data provided by Exchanges, Clearing Corporations and Depositories pertaining to auction trades, corporate actions, SLBM transfers, off market trades etc. The securities holding balance computed is matched with the actual clients’ securities holding in the demat account and submission made by the broker for the next day. Any mismatch in data is flagged as an alert for Exchanges.

As such, SEBI has developed the in – house capabilities to online track the movement of client securities collected by broker as collateral and raise alerts with Exchanges if diversion of clients’ securities is noticed. These reports are being generated by SEBI on a weekly basis and three such mismatch reports have already been forwarded to Exchanges for reconciliation with members.  This system is likely to timely detect the misuse of clients’ securities collected by brokers as collateral or received in pay-out of securities.

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Compulsory demat – for unlisted public companies

MCA has vide its notification dated 10th September, 2018 mandated that with effect from 2nd October, 2018
1) every unlisted public company shall issue its shares only in dematerialised form;
2) facilitate dematerialisation of all its existing securities;
3) shall make necessary application to the depository in this regard;
4) shall secure International Security Identification Number (ISIN) for each type of security and inform its security holders accordingly;
5) shall make timely payment of fees to the Depository and Registrar & Share Transfer Agent (RTA) in accordance with tripartite agreement into between them;
6) shall maintain security deposit of not less than two years’ with the Depository & RTA in such form as may be agreed between the parties;
7) shall comply with the regulations or guidelines or circulars or instructions, if any, issued by SEBI w.r.t dematerialisation of securities of unlisted public companies;
8) shall submit a half yearly audit report u/r 55 of SEBI (Depositories & Participants) Regulations, 2014 to the ROC.
Every shareholder of an unlisted public limited company, shall with effect from 2nd October, 2018 shall
1) get his/her/ its securities dematerialsed before transfer
2) who subscribes to any securities after the aforesaid date, shall ensure that his securities are dematerialised.
The grievances of a security holder of an unlisted public company shall be filed before the Investor Education & Protection Fund. The IEPF Authority is empowered to initiate action against any unlisted public company, depository, RTA.

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Simplification of demat account opening process

SEBI has issued a circular dated 4th December 2013 on simplification of demat account opening process. Basically what they have done is replace the existing Beneficiary Owner – Depository Participant Agreement with the common document called “Rights & Obligations of Beneficial Owners and Depository Participants”. SEBI promises that this will harmonise the demat account opening process for trading as well as demat account besides also reducing the no. of signatures required on the documents. Depository Participants are required to send the revised document to its existing clients as well and take their signatures as an acknowledgement of having received the same – well that is one signature added to the existing process!!!

Well, let’s hope the new regime brings in more demat customers and spurs the retail boom in stock markets. 

Copy of the SEBI circular is found here http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386158734288.pdf

 

 

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Simplification & Standardisation of Procedures for Transmission of shares

SEBI has issued a new circular no. CIR/MIRSD/10/2013 dated October 28, 2013 wherein they have further simplified and standardised the procedure for transmission of shares in case of listed companies: 

.

1) In case of transmission of securities in dematerialized mode, where the securities are held in a single name without a nominee, the existing threshold limit of Rs.1,00,000 (Rupees One lakh only) per beneficiary owner account has now been revised to Rs.5,00,000 (Rupees Five lakh only), for the purpose of following simplified documentation, as already prescribed by the depositories vide bye-laws / operating instructions.

2) In case of transmission of securities in physical mode, where the securities are held in single name without a nominee, the STAs/issuer companies shall follow, in the normal course, the simplified documentation for a threshold limit of ` Rs.2,00,000 (Rupees Two lakh only) per issuer company. However, the Issuer companies, at their discretion, may enhance the value of such securities.

3) The timeline for processing the transmission requests for securities held in dematerialized mode and physical mode shall be 7 days and 21 days respectively, after receipt of the prescribed documents.

Documentary requirement for securities held in physical mode
1. For securities held in single name with a nominee:
i. Duly signed transmission request form by the nominee.
ii. Original or Copy of death certificate duly attested by a Notary Public or by a Gazetted Officer.
iii. Self attested copy of PAN card of the nominee. (Copy of PAN card may be substituted with ID proof in case of residents of Sikkim after collecting address proof)

2. For securities held in single name without a nominee, following additional documents may be sought:
a) Affidavit made on appropriate non judicial stamp paper – to the effect of identification and claim of legal ownership to the securities

b) For value of securities upto ` 2,00,000 (Rupees Two lakh only) per issuer company as on date of application, one or more of the following documents:
i. No objection certificate [NOC] from all legal heir(s) who do not object to such transmission (or) copy of Family Settlement Deed duly notarized or attested by a Gazetted Officer and executed by all the legal heirs of the deceased holder.

ii. Indemnity made on appropriate non judicial stamp paper – indemnifying the STA/Issuer Company.

c) For value of securities more than ` 2,00,000 (Rupees Two lakh only) per issuer company as on date of application:
i. Succession certificate (or) Probate of will (or) Letter of Administration (or) Court decree.

The full circular is available at 

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1382951356969.pdf

 

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