Prof R Balakrishnan – [2024] 168 taxmann.com 524 (Article)
1. Background of the case
M/s. Kross Manufacturing (India) Private Limited was incorporated in the year 1991 in Jamshedpur of Jharkhand state and later the company was covered into a public limited company in the year 2017 and it was then known as Kross Limited. The company failed to transfer the securities in dematerialized (Demat) form during the year 2024 as mandated by the Companies Act. This has resulted on the company’s failure to meet the provisions of section 29 of the Companies Act 2013, which mandates that companies were required to issue the securities only in dematerialized form in accordance with the Depositories Act, 1996.
The company, upon realizing the default committed by them, filed an adjudication application with the Registrar of Companies, acknowledging non-compliance with the provisions of section 29 of the Companies Act 2013 read with Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules 2014. The company admitted that it had failed to transfer its shares into a dematerialized form, as required by law, from October 1, 2018, to October 20, 2022, amounting to a total delay of 1,479 days. The Adjudication Officer, after following the due procedures of law, penalized the company and its six directors to the tune of Rs. 5 lakh. Let us go through this case in order to understand the applicable provisions, procedure involved and the manner in which the Adjudicating Officer dealt with this case and penalized imposed upon the company and its directors.
2. Relevant provisions of the Companies Act 2013 relating to this case
The provisions of section 29 of the Companies Act 2013 read with Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules 2014 provides inter alia that:
| Companies Act 2013 Chapter III – Prospectus and Allotment of Securities Part I – Public Offer Section 29 – Public offer of securities to be in dematerialised form. |
|
| Section | Provision |
| 29 (1) | (1) Notwithstanding anything contained in any other provisions of this Act, — |
| 29(1) (a) | every company making a public offer; and |
| 29(1)(b) | such other class or classes of public companies as may be prescribed, shall issue the securities only in dematerialised form by complying with the provisions of the Depositories Act, 1996 (22 of 1996) and the regulations made thereunder. |
| 29(2) | Any company, other than a company mentioned in sub-section (1), may convert its securities into a dematerialised form or issue its securities in physical form in accordance with the provisions of this Act or in dematerialised form in accordance with the provisions of the Depositories Act, 1996 (22 of 1996) and the regulations made thereunder. |
| Note | From the above, it is clear that as per section 29 of the Companies Act 2013, the company is mandatorily required to maintain its securities in dematerialized form. |
| Companies (Prospectus and Allotment of Securities) Rules 2014 Rule 9 Decartelization of Securities 9A. Issue of securities in dematerialised form by unlisted public companies. |
|
| Rule | Provision |
| 9A (2) | Every unlisted public company making any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer shall ensure that before making such offer, entire holding of securities of its promoters, directors, key managerial personnel has been dematerialized in accordance with provisions of the Depositories Act 1996 and regulations made there under. |
| Penal provisions in case of default/non-compliance | |
| Companies Act 2013 Chapter XXIX – Miscellaneous Section 450 – Punishment where no specific penalty or punishment is provided. |
|
| Section | Provision |
| 450 | If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person. |
Click Here To Read The Full Article
The post [Opinion] Dematerialisation Overlooked! ROC Acts Against Transfers Without Having Securities Dematerialised appeared first on Taxmann Blog.