13 February 2025
MCA Extends Timeline to Dematerialize Shares
 
The Ministry of Corporate Affairs ("MCA"), vide its Circular dated 12 February 2025, has issued the Companies (Prospectus and Allotment of Securities) Rules, 2025 ("Amendment Rules"). The Amendment Rules shall come into force on the date of publication in the official gazette.

The Amendment Rules have the following effect:
  • Amendment Rules give a timeline to private companies (other than small companies) to dematerialize their shares by 30 June 2025, which was earlier 30 September 2024.
  • The amendment is declaratory in nature, which shall apply retrospectively; and
  • It declares that by issuing Amended Rules with retrospective effect, the interest of no person shall be adversely affected.
Our Comments
MCA mandated private companies (other than small companies) to facilitate the dematerialization of securities and shareholders to hold securities in the dematerialized form. However, the said mandate of dematerialization of securities largely remained incomplete by the earlier due date of 30 September 2024 for several reasons, including overburdened depositories. That not only resulted in non-compliance with the provision of law but also affected the private companies' ability to raise funds by issuing securities in the absence of dematerialization. Predominantly, that delayed the purchase of securities of Indian companies by foreign shareholders/investors, it also hampered the ease of doing business.

However, the revised timeline is a welcome move that addresses the immediate concerns of the investors and investee companies as they can implement their fund-raising plans and also carry out the dematerialization process. Importantly, the retrospective nature of the amendment would save the companies from incurring non-compliance with an earlier due date.

You can access Amendment Rules here.
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