PAS-6 – Applicability for Private Companies - MMJC

• Introduction:

Demat was made mandatory for all private companies, barring some exceptions, in October 2023 by insertion of Rule 9B in the Companies (Prospectus and Allotment of Securities) Rules 2014 which are coming from Chapter III of Companies Act, 2013 (hereinafter referred to as ‘Chapter III Rules’). Before this, demat was mandatory only for public companies as per Rule 9A of these Chapter III Rules, with certain exceptions. With this, all incidental compliance which were applicable for public companies relating to demat also become applicable to private companies. One such compliance is filing of a half-yearly Form PAS-6 with the Ministry of Corporate Affairs (‘MCA’). In this article, we shall discuss the applicability of this Form PAS-6 for private companies.

• What is Form PAS-6:

Form PAS-6 is an e-form prescribed under sub rule (5) of Rule 9A of the above-mentioned Chapter III Rules for reconciliation of issued capital of a company vis-à-vis the shares held in dematerialized mode, in CDSL or NSDL or shares held in physical form. It is a form through which any mismatches in the number of shares as per Register of Members compared with their mode of existence can be tracked and reported to the Regulator, along with reasons for mismatch.

This e-form is similar to the certificate to be provided for listed entities under Regulation 76 of the SEBI (Depositories and Participants) Regulations, 2018 for the same purpose, on a quarterly basis to be submitted with stock exchanges within 30 days of end of quarter. In case of unlisted companies, this Form PAS-6 is the equivalent form but it is prescribed to be submitted on a half-yearly basis to be submitted to MCA within 60 days of end of half year. The correctness of the data in this form is to be certified by a Company Secretary or Chartered Accountant in whole time practice.

• Demat Applicability for Private Companies and obtaining ISIN:

Rule 9B was inserted in Chapter III Rules on 27 October 2023, under which:-

• Sub Rule (2) mandates every private company, which as on last day of a financial year, ending on or after 31 March, 2023, is not a small company, to comply with the entire Rule 9B, within eighteen months of closure of financial year (as per which it is not a small company), i.e., on or before 30 September 2024.

• However, sub rule (1) says that within the period prescribed under sub rule (2), (i.e., even before 30 September 2024) issue the securities only in dematerialised form and facilitate dematerialisation of all its securities.

This means 30 September 2024 is the last date before which all private companies which are not small companies need to get connectivity with the Depositories, i.e., either NSDL or CDSL or both and procure International Securities Identification Number (ISIN). Many private companies would have already got themselves connected with the Depositories and obtained ISIN without waiting for the last date of 30 September 2024.

• Provisions requiring filing of Form PAS-6:

The requirement of filing Form PAS-6 are mentioned in sub rule (8) of Rule 9A of the said Chapter III Rules, under which public companies have been filing Form PAS-6 since 2019. Under the newly inserted Rule 9B for private companies, the sub rule (5) says that “the provisions of sub-rules (4) to (10) of rule 9A shall, mutatis mutandis, apply to the dematerialisation of securities under this rule 9B.”  Hence, pursuant to this Rule 9B(5) read with Rule 9A(8), the Form PAS-6 becomes applicable even for private companies (other than small companies) for whom demat has become mandatory, including wholly owned subsidiaries of private companies and section 8 companies having share capital. The only exception is government companies who are exempted from demat under Rule 9B(6).

Although the time period of 18 months, i.e., till 30 September 2024 is prescribed under rule 9B(2), it can be seen that this period cannot be strictly said to be applicable even for rule 9B(1). Similarly, there is no time period specified for compliance of Rule 9B(5), through which the requirement of filing PAS-6 arises. Hence, it is ambiguous whether PAS-6 filing requirement will get triggered from the half year ended on 31 March 2024 OR from the half year ending on 30 September 2024?

Further if we analyse the entire Rule 9B, then broadly speaking, the only obligation cast on the company by Rule 9B is facilitating demat of securities (i.e., getting connectivity with either NSDL or CDSL by obtaining ISIN). Thereafter it is the obligation of the security holders to get their securities dematerialized. All other obligations on the company arise only if it is issuing securities or buying back its securities.

So, if a private company has already obtained ISIN, then it can be said that the Company has already complied with Rule 9B, even before the time allowed under sub rule (2). In such case, there cannot be any particular reason why such a private company should not file PAS-6 for the half year ended on 31 March 2024, and wait for the half year ending on 30 September 2024.

Further it is important to note that mentioning ISIN is a mandatory field while filling PAS-6. A company cannot proceed in filling this form without mentioning the ISIN.

• Need for clarity from MCA:

Based on the above analysis, it appears that a conservative view would be that if a private company has obtained ISIN, then it is recommended that it files Form PAS-6 starting from the half year ended on 31 March 2024, and the due date for filing this Form PAS-6 with normal fees is 30 May 2024.

However, there would be lot of companies who may have applied to the Depositories and not yet obtained ISIN OR who may be taking a view that sub rule (2) of Rule 9B provides a time till 30 September 2024 to comply with the rule 9B, then why should they not wait and file the Form PAS-6 starting from the half year ending on 30 September 2024. When similar requirement of filing PAS-6 was introduced in Rule 9A for public companies vide its notification dated 22 May 2019, MCA had vide clarified that it shall come into force with effect from 30 September 2019. If now also, MCA issues any such clarification for prescribing whether the Form PAS-6 filing will be required from the half year ended on 31 March 2024 OR from the half year ending on 30 September 2024, then it shall clear the air around this ambiguity and shall be a good guidance for ensuring compliance by the industry !!