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In this edition we will be seeing about Enhanced Due Diligence on DEMAT. Our usual Legal terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST will follow the article.

 CS Saranya Deivasigamani,
CEO

ENHANCED DUE DILIGENCE ON DEMAT

Securities and Exchange Board of India (SEBI)  has directed all listed companies to provide data of their members holding shares in physical mode including the name of shareholders, folio numbers, certificate numbers, distinctive numbers and PAN as on March 31, 2019 to the depositories, latest by December 31, 2019. On the other hand, depositories, are required to capture the relevant details from the static database, as well as validate any dematerialization request received after December 31, 2019.

In order to avoid fake certificates, forging transfer or losing the physical certificate, SEBI issued a circular on November 5, 2019 asking depositories, recognised stock exchanges, and all listed companies to conduct enhanced due diligence for dematerialization of physical shares.

Enhanced Due Diligence

In general context, Enhanced Due Diligence is a KYC process that provides a greater level of scrutiny of potential business partnerships and highlights risk that cannot be detected by regular Due Diligence.

Enhanced Due Diligence on DEMAT

Extinction of physical mode: In terms of Regulation 40 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (IV Amendment) Regulations, 2018 (LODR), transfer of securities held in physical mode is not permitted w.e.f. April 01, 2019. Standardised norms with respect to documentation / procedure for transfer of physical securities were issued vide SEBI circular No. SEBI/HO/MIRSD/DOS3/CIR/P/2018/139 dated November 06, 2018.

Due Diligence Process:

To augment the integrity of the system in processing of dematerialization request in respect of the remaining physical shares, the Depositories and the listed companies / RTAs are directed to implement the following due diligence process:

I. All Listed companies or their RTAs shall provide data of their members holding shares in physical mode, viz the name of shareholders, folio numbers, certificate numbers, distinctive numbers and PAN etc. (hereinafter, static database) as on March 31, 2019, to the Depositories, latest by December 31, 2019.

The common format for this data shall be specified jointly by the Depositories and be communicated to Issuer companies / their RTAs.

II. Depositories shall capture the relevant details from the static database as per clause I above and put in place systems to validate any dematerialization request received after December 31, 2019. Accordingly, the depository system shall retrieve the shareholder name(s) recorded against the folio number and certificate number in Static Data for each DRN request received after this date and validate the same against the demat account holder(s) name as available in the records of the Depositories.

III. In case of mismatch of name on the share certificate(s) vis-à-vis name of the beneficial owner of demat account, the depository system shall generate flag / alert. In instances, where such flags / alerts have been generated, the following additional documents explaining the difference in name, as prescribed in paragraph 2 (b) of the cited SEBI circular of November 06, 2018, shall be sought, namely

i. Copy of Passport

ii. Copy of legally recognized marriage certificate

iii. Copy of gazette notification regarding change in name

iv. Copy of Aadhar Card

IV. In the case of complete mismatch of name on the share certificate(s) vis-à-vis name of the beneficial owner of demat account, the applicant may approach the

Issuer company / RTA for establishing his title / ownership.

Depositories Duties:

a) make necessary amendments to the relevant byelaws, rules and regulations for the implementation of the above directions, as may be applicable

b) bring the provisions of this circular to the notice of their participants and also disseminate the same on their websites; and

c) communicate to SEBI, the status of implementation of the provisions of this circular in their Monthly Report.

Today, holding shares in Demat form is not mandatory, but certain instances where trades falls under Group A and B shares under BSE are required compulsory to Demat for transfer and delivery. Also selling shares and purchasing IPO now require a Demat account. What’s more is that new company issuing shares (IPOs) are being issued in Demat mode only.

Legal Terms

Intestate

adv. Not having made a will before one dies.

MCA Updates

• Extension of last date of filing Form PAS-6
• Relaxation of additional fees and extension of last date in filing of forms MGT-7 (Annual Return)
• Extension of last date of filing NFRA-2
• Corrigendum to Amendment of Schedule VII of the Companies Act, 2013
• Companies Meeting of Board And Its Powers Second Amendment Dated 18 Nov 2019.

SEBI Updates

• Mapping of Unique Client Code (UCC) with demat account of the clients.
• Collection and reporting of margins by Trading Member (TM) /Clearing Member (CM) in Cash Segment.
• Disclosures by listed entities of defaults on payment of interest/ repayment of principal amount on loans from banks / financial institutions and unlisted debt securities.
• Investment Policy of Clearing Corporations.
• Framework for issue of Depository Receipts.
• Norms for Debt Exchange Traded Funds (ETFs)/Index Funds.
• Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Fifth Amendment) Regulations, 2019

RBI Updates

• Foreign Exchange Management (Export of Goods and Services) (Amendment) Regulations, 2019.
• Exim Bank’s Government of India supported Line of Credit (LOC) of USD 500 million to the Government of Bangladesh.

IT Updates

• ​Prohibition of Benami Property Transactions (1st Amendment), Rules, 2019​.
• Waiver of Interest for TDS deducted under section 194M​.

GST Updates

• Annual Returns for FY 2017-18.
• Forms available on GST Portal for Taxpayers and Tax Officials
• Blocking and Unblocking of EWB generation facility at E-way Bill Portal

Expert Section

The expert section will provide the articles written and submitted by other professionals to participate in Zappy News on the topics that were recently discussed here. This section will add on when and where an article is received.

This month contribution is from CS. Kunal Chauhan.