The Ministry for Corporate Affairs (MCA) notified the commencement of the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018, on 10 September 2018 by inserting section 9A, which provides for the mandatory dematerialization of all securities of an unlisted public company (UPC). On 11 September 2018, the MCA issued a press release clarifying the rationale for issuing the amendment rules, namely to increase transparency in securities transactions, protect investors and provide governance in the corporate sector.
Rule 9A mandates that every UPC, commencing 2 October 2018 (the date on which the amendment rules come into effect), must issue securities only in dematerialized form and facilitate the dematerialization of existing securities in accordance with the Depositories Act, 1996. Key provisions of the new rule are as follows:
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