Current Development in Minority Shareholding in Demat Form

Current Development in Minority Shareholding in Demat Form
Karan Singh
| Updated: Jul 24, 2021 | Category: SEBI Advisory

To make sure the ease of implementation of the acquisition of the minority shareholding, the Act of 2013 authorises the company or entity to grant new shares in place of the undelivered shares within the prescribed time. Also, there are some provisions to hold minority shareholdings in the physical form under the Companies Act, 2013, while there is no cite of holding minority shareholders in Demat form. So to have minority shareholders in Demat form, the Ministry of Corporate Affairs (MCA) grants a notification on December 17, 2020 and announced Rule 26A in the CAA Rules, 2016. Scroll down to check the process of holding minority shareholding in Demat form.

New Norms on the Purchase of Minority Shareholding in Demat Format by MCA

MCA has introduced Rule 26 in the CAA Rules, 2016, to offer for purchasing minority shareholding in Demat form. Following is the procedure for the purchase of minority shareholding in Demat form:

1- Details Confirmation of holding shares of Minority Shareholders in Demat Form: The entity has to confirm the details of minority shareholding in Demat form with two weeks of getting the amount identical to the acquirer’s shares price.

2- The Company or Entity needs to send a notice to the shareholding notifying them regarding the cut-off date:  A notification should be sent to the minority shareholdings by the entity either through speed post, email, registered post, courier notifying them regarding the cut-off date. On the cut-off date, the shares held by the shareholding should be debited from the account and credited to the Demat Account of the company or entity.

This date shouldn’t be previous than one month after sending the proposed notice. In the case of any holiday, then the following date should be considered to be a cut-off date.

3- The Notice Helped to Minority Shareholdings Should be Released in the Newspaper: The notice assisted to the minority shareholdings should be released in two newspapers, one in the regional language and one in the English language in the district where the registered office of the company is located and should also be updated on the website of the company in case if they have any website.

4- The Company Needs to Notify the Depository Regarding the Cut-off with the List of Declarations: After releasing the notice in the newspaper and the website of the company, then the company should notify the depository regarding the cut-off date & submit the following declarations:

  • The company has obeyed the provisions of Section 236 of the Companies Act, 2013;
  • The minority shareholding in Demat form should be notified regarding the action of the company;
  • The company should pay the minority shareholder soon after the action of the company;
  • In the case of any grievance or dispute, the sole accountability lies with the company.

5- The Depository has to Transfer the Minority Shares to the Entity on the Cut-off Date: The depository should transfer the shareholdings to the appointed Demat account of the entity or company on the cut-off date except for the shares already credited in the Demat account of the acquirer. The assumed transfer should be suggested to the company. There is a particular order of the Tribunal or Court or any legal authority, restricting such share transfer and transfer of dividend accordingly Depositories Act, 1996; the depository will not transfer the minority shareholdings the appointed the account of the company.

6- The Payment to the Shareholding needs to be made by the Entity or Company: After the transfer of the shares, the company or entity needs to make the payment to each of the shareholdings after subtracting the appropriate stamp duty. The company should pay the stamp duty on behalf of minority shareholdings according to the Indian Stamp Act, 1899[1].

7- The Depository Transfers the Minority Shares from the Demat Account of the Company to the Demat Account of the Acquirer:

Once the payment for the minority shareholdings is successfully disbursed, the entity or company has to notify the depository to transfer the shares from the company’s Demat account to the Demat account of the acquirer. When the expenditure of the payment is not made within the prescribed time, then the transfer of the shares to the Demat should be done after such disbursement.

Conclusion

The process of acquisition of minority shareholdings in physical form is certainly described in the Companies Act, 2013. But, there were challenges in executing the minority shareholding in Demat form. In the absence of obvious guidelines to observe the minority shareholdings in Demat form, the MCA informed new rules to provide the majority shareholders to get minority shareholdings in Demat form.

Read our article:SEBI Guidelines for IPO: Guidelines for Making Public Offer in India

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Karan Singh

A legal writing enthusiast, a wanderer, and a zealous reader. After gaining a lot of knowledge about the diverse legal topics and developing research skills, Karan joined the league of legal content writers to deliver quality-rich blogs.

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