Recent development in Minority Shareholding in Demat Account

Navdisha Sehgal

13 Sep, 2022

To ensure the smooth implementation of the acquisition of the minority shareholding, the Act of 2013 empowers the company to issue new shares in place of the undelivered shares within the specified time.

There are provisions to hold minority shareholdings in the physical form under the Companies Act, 2013^[1], whereas there is no mention of holding minority shareholders in Demat form. So to have minority shareholders in Demat form, the MCA issues a notification on 17^th December 2020 & introduced Rule 26A in the CAA Rules, 2016.

In the article, we will look into the process of holding minority shareholders in Demat form.

What are the MCA new rules on the purchase of minority shareholding in Demat form?

MCA, via the notification on 17^th December 2020, introduced Rule 26A in the CAA Rules, 2016 to provide for purchasing minority shareholding in Demat form.

The step by step process in relation to the purchase of minority shareholding in Demat form are:

• Verification of the details of minority shareholders holding shares in Demat form

The company needs to verify the details of minority shareholdings in Demat form within 2 weeks of receiving the amount equal to the acquirer’s price of shares.

• The company needs to send notice to the minority shareholdings informing them about the cut – off date.

A notice must be send to the minority shareholders by the company either via registered post or speed post or courier or email informing them about the cut – off date. On the cut – off date, the shares held by the minority must be debited from the account & credited to the company’s Demat account.

The cut–off date must not be earlier than one month after sending the said notice. In case of a holiday, then the following date must deemed to be a cut – off date.

• The notice served to minority shareholdings must be published in the newspaper.

The notice served to the minority shareholdings must be published in two newspapers (one in English & one in the regional language) in the district where the company’s registered office is situated & must also be uploaded on the company’s website (if any).

• The company needs to inform the depository about cut – off with the declarations’ list.

After the publication of the notice in the newspaper & the company’s website (if any), then the company must inform the depository about the cut – off date &submit the following declarations that:

1. The company has complied with the provisions of Section 236 of the Companies Act, 2013;
2. The minority shareholders held in demat form must be informed about the company’s action;
3. The company must pay the minority shareholder soon after the company’s action;
4. In case of any dispute or complaint, the sole responsibility lies with the company.

• The depository has to transfer the minority shares to the company on the cut – off date.

The depository must transfer the minority shareholdings to the designated demat account of the company on the cut – off date except for the shares already credited in the acquirer’s demat account. The said transfer must be intimated to the company.

There is a specific order of Court or Tribunal or any statutory authority, restraining such share transfer & transfer of dividend as per the Depositories Act, 1996; the depository will not transfer the minority shareholdings the designated company’s account.

• The payment to the minority shareholdings needs to be made by the company.

After the transfer of shares, the company needs to make the payment to each of the minority shareholdings after deducting the applicable stamp duty. The company must pay the stamp duty on behalf of the minority shareholdings as per the Indian Stamp Act, 1899.

• The depository transfers the minority shares from the company’s demat account to the acquirer’s demat account.

After the payment for the minority shareholdings is disbursed successfully, then the company has to inform the depository to transfer the shares from the demat account of the company to the acquirer’s demat account.

When the disbursement of the payment is not made within the specified time, then the transfer of shares to the demat account must be done after such disbursement.

Conclusion

The procedure of acquisition of minority shareholdings in physical form is clearly mentioned in the Companies Act, 2013. However, there were difficulties in implementing the minority shareholdings held in demat form. In the absence of clear guidelines to monitor the minority shareholdings in demat form, the MCA notified new rules to facilitate the majority shareholders to acquire minority shareholdings in demat form.

Read our article: SEBI’s Proposal for “Recalibration of Threshold for Minimum Public Shareholding Norms on Relisting”