The Ministry of Corporate Affairs (“MCA”), in the exercise of its power under section 29 read with section 469 of the Companies Act 2013 released the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 (“Amendment”) via Notification dated 27th October 2023 thereby amended the Companies (Prospectus and Allotment of Securities) Rules, 2014 (“Rules”).

DEMATERIALIZATION OF SECURITIES: The new rule 9B has been inserted into Rules whereby it has been made mandatory for all private companies (other than small companies1) to (i) issue the securities only in dematerialized form; and (ii) facilitate dematerialization of all securities in accordance with the Depositories Act, 1996.

DEADLINE: A private company is required to comply with the Amendment within 18 (eighteen) months of closure of the financial year ending on 31st March 2023 i.e., between 31st March 2023 to 30th September 2024.

APPLICABILITY ON ISSUANCE: Every private company is required to ensure that before making an offer for the issue of any securities, or buyback of securities, or the issue of bonus shares, or rights offer2, it must dematerialize the entire holding of its promoters, directors or key managerial personnel.

APPLICABILITY ON TRANSFER/SUBSCRIPTION OF SHARES: Moreover, every holder of securities of the private company who:
(i) intends to transfer such securities must get its securities dematerialized before the transfer; and
(ii) subscribe to securities of a private company whether by way of private placement or bonus shares or rights offer must ensure that all his securities are held in dematerialized form before such subscription.
EXCEPTION: This Amendment shall not apply to small companies and government companies. For more information, queries, or follow-up, please feel free to contact us at info@dalaw.in.