The Institute of Company Secretaries of India (ICSI) has submitted a letter to the Ministry of Corporate Affairs (MCA), addressing the practical difficulties faced by private companies in the dematerialization process mandated by Rule 9B of the Rules of Companies (Prospectus and Allocation of Securities), 2014. The main problems include a significant delay in the issuance of International Securities Identification Numbers (ISIN), with approximately 25,000 applications pending at NSDL and 8,000 at CDSL, resulting in processing delays of 30 to 45 days. Additionally, costs associated with going paperless, including filing fees and IT system upgrades, range between ₹125,000 and ₹175,000 for registration and between ₹215,000 and ₹250,000 per year, which adds financial pressure to businesses. Operational complexities also pose challenges, especially for foreign shareholders who require a PAN to open DEMAT accounts. Although some companies are fulfilling their obligations, delays by NSDL, CDSL and Registration and Transfer Agents (RTAs) have created bottlenecks beyond their control. Accordingly, ICSI requests that companies complying with dematerialization requirements but awaiting responses from these agencies be exempt from penalties until December 31, 2024. ICSI stands ready to provide additional information if necessary.

THE INSTITUTE OF
Business Secretaries of India
IN SEARCH OF PROFESSIONAL EXCELLENCE
Statutory body under an Act of Parliament
(Under the jurisdiction of the Ministry of Corporate Affairs)

MCA: OCT/2024 | Dated: October 17, 2024

Ms Deepti Gaur Mukerjee
Secretary
Ministry of Corporate Affairs
Government of India
Shastri Bhawan
New Delhi —110,001

Respected Madam,

Subject: Practical difficulties encountered when handling the dematerialization process by private companies.

With reference to Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, private companies (other than small companies) are required to issue securities in dematerialized form and facilitate dematerialization of all securities existing as per the Depositories Act, 1996. In this regard, we have previously submitted a letter on September 9, 2024 requesting an extension to meet the DEMAT requirements outlined in Rule 9B (copy attached).

We would like to draw your attention to several practical difficulties encountered by private companies during the dematerialization process as follows:

1. Delays and delays in ISIN creation

Currently, there is a significant delay in the issuance of ISINs. Around 25,000 applications are pending with NSDL and 8,000 with CDSL, resulting in a processing time of 30-45 days even after submission of required documents and payment. Additionally, Registrar and Transfer Agent (RTA) delays in processing documents add to the challenge, making it difficult for businesses to comply in a timely manner.

2. High costs

The dematerialization process involves significant costs, including custodian fees and IT system upgrades. Registration fees for businesses vary between 125,000 and 175,000, with annual costs between 215,000 and 250,000.

3. Operational complexities

Private companies are required to obtain ISINs and dematerialize their shares through an RTA, while shareholders must open DEMAT accounts with registered brokers. This process is particularly tricky for foreign shareholders, who face difficulties in obtaining a PAN, necessary for opening DEMAT accounts.

It is important to note that several companies have already completed their part of the paperless process, including submitting the necessary documents and payments. However, delays at NSDL, CDSL and RTA are beyond their control and have created a bottleneck.

We respectfully request that companies that have complied with their obligations but are awaiting responses from these agencies cannot be held liable for any criminal consequences until December 31, 2024.

We appreciate your attention to this matter and are happy to provide additional details or clarification if necessary.

Thank you for your consideration.

Yours faithfully,

CS B Narasimhan
President
The Institute of Company Secretaries of India