Confirm If content is correct please

[Company Secretary]

Yes, foreign subsidiaries of private companies in India are required to issue shares in dematerialized form. This is because the dematerialization requirement applies to all private companies in India, except for small companies. 

Explanation

• The dematerialization requirement applies to all private companies in India, except for small companies. 
• Foreign subsidiaries are not considered small companies, irrespective of their paid-up share capital and turnover. 
• This means that foreign subsidiaries must comply with the dematerialization requirement from the date of their incorporation. 
• The dematerialization requirement applies to both existing and new securities. 

Consequences of non-compliance 

• The company will be unable to issue or allot any securities.
• Shareholders will be unable to sell their shares or subscribe to new ones.
• The company faces monetary penalties.
• Officers in default also face similar penalties.

And the situation will remain the same, if our WOS of Dubai issues shares to an Indian holding company.

[B. Vinay Kumar]

Yes sir it is correct company need to follow with dematerialization as with in 6 months from the 31-03 where it has become the other than small company
As we are required to file the fcgpr for the allotment we are required to pass the resolution of allotment and then we are required to follow the producer of de mat as demat takes lots of time for providing the isin and allotment.

With the passed allotment resolution we are required to file fcgpr with in 60 Days or else it will attract lrs

Or make the investment after opening the demat of the Company and share holders
After taking the isin then proceed with the allotment and investment.

Regards
B Vinay Kumar

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[Madhusudhanan Sanjeevi]

Hi,

There is another interpretation certain companies are taking 

Refer to the below Extract of Rule 9B Companies (Prospectus and Allotment of Securities) Rules, 2014 as amended by Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023

"(1) Every private company, other than a small company, shall within the period referred to in sub-rule (2) -

(a) issue the securities only in dematerialised form; and

(b) facilitate dematerialisation of all its securities, in accordance with provisions of the Depositories Act, 1996 (22 of 1996) and regulations made thereunder

(2) A private company, which as on last day of a financial year, ending on or after 31st March, 2023, is not a small company as per audited financial statements for such financial year, shall,

within eighteen months of closure of such financial year, comply with the provisions of this rule."

 As per rule 2 a private company need to assess whether they are small company or not with reference to audited financial statement at the end of the the financial year. Combined reading of rule 1 & 2 can be understood as, Rule 1 (i.e. demat of securities) is mandatory for a WOS of a foreign company after 18 months from the end of first financial year.

WOS of the Foreign company is not small company from day one, however rule 2 warrants the small company assessment to be done based on the audited financials at the financial year end.

It need not comply from the date of incorporation.

Regards,

Madhusudhanan 

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[SURENDER HARSH]

Foreign subsidiaries of private companies in India are required to issue shares in dematerialized form. This requirement stems from the broader mandate that applies to all private companies in India, except for small companies.

Explanation

1. The dematerialization requirement is applicable to all private companies in India, excluding small companies.
2. Foreign subsidiaries are not considered small companies, regardless of their paid-up share capital and turnover.
3. Consequently, foreign subsidiaries must comply with the dematerialization requirement from the date of their incorporation.
4. This requirement extends to both existing and new securities.

Consequences of Non-Compliance

Failure to comply with this requirement can result in the following:

• The company will be unable to issue or allot any securities.
• Shareholders will be unable to sell their shares or subscribe to new ones.

• The company may face monetary penalties.
• Officers in default are also subject to similar penalties.

Furthermore, the same compliance requirements will apply if Your wholly owned subsidiary (WOS) in Dubai issues shares to an Indian holding company.

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Thanks & Regards 

CS SURENDER KUMAR HARSH 

FCS, MBA (FINANCE), DLM, DIM, M.COM. ,TRADEMARK ATTORNEY,

S.K.HARSH & ASSOCIATES (UNIQUE ID - (S2014RJ2642000)

COMPANY SECRETARY IN PRACTICE  (F10229)

(PEER REVIEWED FIRM( PRC NO. 2691/2022)

Past Chairman Bikaner Chapter NIRC of ICSI

IST FLOOR VED MARKET RANI BAZAAR, 

BIKANER RAJASTHAN-334001

98291-61417, 85030-11417 

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Web :www.skharshassociates.com

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[Company Secretary]

Sir,

Our Company is holding Company and has incorporated a WOS in Dubai, and our Dubai based Subsidiary Company is issuing share to allot again to holding. If in This situation also dematerialization is applicable.

Expecting a kind response.

Thanks you,

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[B. Vinay Kumar]

Sir
If the wos is incorporated in India then we are required to do the demat.
But in your case that company is in Dubai Then you are required to do it as per norms of Dubai

As companies act is applicable to India company only.

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[A V Sharma & Company]

Hi All 

Is a subsidiary of foreign company in India . Indian subsidiary is small company required to dematerialise its shares 

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