Push for demat in unlisted firms

New Delhi: The Modi government is mulling the option of making it mandatory for unlisted companies to issue securities in dematerialised form.

Finance minister Arun Jaitley informed the Lok Sabha during question hour that the government has already carried out consultations with market regulator Sebi, depositories and other stake holders to determine whether it would be feasible to “mandate in a phased manner” that unlisted companies also issue securities in dematerialised form.

The move is designed to bring about “greater transparency in shareholding and share transactions, better acceptance of such shares as collateral and mitigation of disputes and risks associated with securities issued in paper form,” Jaitley said in reply to a question raised by Bidyut Baran Mahato, MP from Jamshedpur.

The finance minister said that section 29 of the Companies Act 2013 conferred powers on the government to issue such a mandate. Section 29 says that every company that makes a public offering must issue shares only in dematerialised form. But there is a proviso that says this condition can be extended to “such other class or classes of public companies as may be prescribed.”

“No final decision on the prescription of classes of public companies has yet been taken,” he said.

Jaitley said Sebi had in its response stated that its depository regulatory framework enabled such a prescription.

In the debate that followed, Mahato said in the absence of a mandate for paperless securities for all companies, tonnes of paper were being used to print shares and securities with damaging consequences for the environment.

He said as part of the Centre’s focus on a digital India, it had become necessary to make it mandatory for companies to issue paperless securities.

Jaitley said the government would take a decision on the issue after extensive consultation with stakeholders. “But private companies usually have very few shareholders. So, there isn’t a great deal of paper needed to print these securities,” he added.

In reply to a question from Mahato, the minister said there was no need to provide any incentive to private limited companies to embrace the idea of paperless securities. “The law provides for a mandatory requirement for listed entities. We now must decide whether to extend it to other categories of share issuers,” he added.

The government has been cracking down on private limited companies as part of its drive against black money. Back in September, the finance ministry had frozen the accounts of 2 lakh shell companies and the Registrar of Companies had also deregistered them.

The crackdown had been ordered after data collected post demonetisation revealed that more than 5,000 firms had collectively deposited about Rs 4,750 crore and then withdrew it.

On Friday, Jaitley said there were around 10.68 lakh active unlisted private limited companies and 66,063 unlisted public limited companies operating in the country.

Of the 10,68,829 active unlisted private limited companies, 2,10,367 are registered in Maharashtra, 1,97,333 in Delhi and 1,24,148 registered in Bengal. Among the 66,063 active unlisted public limited companies, 13,030 were registered in Maharashtra, 11,607 in Delhi and 9,311 in Bengal, he added.

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