Reconciliation of Share Capital Audit Report (Half-yearly) [Form PAS-6]

Introduction:

The term “reconciliation of share capital” refers to the process of systematically matching the data of dematerialized and physically held securities with all other securities. In simple terms, it is also the reconciliation of the entire Share Capital of the Company retained in Demat form with the National Securities Depository Limited (NSDL) and Central Depository Securities Limited (CDSL) and physical form by the Company’s shareholders with the total Capital introduced, issued, and listed capital, if any. In India, the government-registered share depositories Central Depositories Services India Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) exist. Electronically held shares are held by share depositories. Shares were stored in the form of actual paper certificates in the past when share trading was only possible in offline modes. Banks are to cash and fixed deposits what CDSL and NSDL are to shares.

Predictive Validity

This Rule applies to all unlisted public businesses as well as private companies that are subsidiaries of public corporations (Deemed Public Companies), with the exception of Government Companies, Nidhi Companies, and Wholly Owned Subsidiaries[1]

Law Applicable

Form PAS-6 is established in accordance with rule 9A sub-rule (8) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, as modified by the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2019.

Rule No. 9A:

Unlisted public corporations can issue securities in dematerialized form. It stipulates that any publicly traded unlisted business should –

1. Only dematerialize the securities; and
2. Allow for the dematerialization of all of the company’s current securities.

In compliance with the Depositories Act of 1996 and the rules promulgated thereunder.

1. In compliance with the Depositories Act, 1996, all unlisted public companies must issue their securities in dematerialized form on or after October 2, 2018, and enable the dematerialization of their existing securities.
2. Before making any offer for securities/buyback/bonus issue/right issue, these companies must ensure that their entire ownership of securities has been converted into dematerialized form through their Promoters, Directors, and Key Management Personnel.
3. Each of these companies’ stockholders must make certain that:
   • He Must convert his securities into dematerialized form before transferring his shares.
   • If he wants to subscribe to his shares, he must make sure that all of his existing securities are dematerialized.
4. Companies must make the requisite application to the Depository to permit dematerialization of all of their current securities, secure an ISIN (International Security Identification Number) for all of their securities, and notify all existing security holders of the facility. To put it more simply, every public firm is required to apply for an ISIN by the PAS-6 deadline.
5. These companies need to make certain that:
6. To pay fees to the Depository and RTA on a timely basis, as agreed. These businesses must keep a security deposit with the Depository and the RTA at all times unless the parties have agreed otherwise. Regulations/Directions/Guidelines/Circulars issued by SEBI or the Depository with relation to the dematerialization of shares of unlisted public companies, as well as matters incidental or connected thereto, must be followed by these firms.
7. If a company fails to comply with subrule (5), it will be unable to conduct any securities offers or buybacks until the payments to depositories or registrars to an issue and share transfer agency is made.
8. Except for Sub-Rule 8, the provisions of the Depositories Act 1996, the Securities and Exchange Board of India (Depositories and Participants) [Regulations, 2018], and the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 apply mutatis mutandis to the dematerialization of securities of unlisted public companies.
9. Significant: Every unlisted public company must submit Form PAS-6 to the Registrar, together with the fee outlined in the Companies (Registration Offices and Fees) Rules, 2014, within sixty days of the end of each half-year, duly attested by a chief executive or chartered accountant in practice.[2]

E-form PAS-6’s Major Components

1. Every half financial year, for each ISIN separately, all information must be provided for the half-year ending 30th September and 31st March.
2. Mention the company’s ISIN.
3.  Information about the company’s capital:
   • Capital Issued
   • In CDSL, the information is held in a dematerialized form.
   •  In NSDL, it is held in a dematerialized form.
   • Physically possessed
   • What is the reason for any discrepancy between Issued and Total Capital?
4. Information on changes in share capital over the half-year in question.
5. Information about updating the members’ register and the reasons for not doing so.
6. Whether there were surplus dematerialized shares in the previous half-year period, and whether the firm remedied the issue indicated in point 10 above in the current half-year.
7. Include the total number of Demat requests confirmed after 21 days, as well as the total number of Demat requests pending after 21 days, together with the reasons for the delays.
8. Information on the company’s secretary, if one exists.
9. Information of the CA/CS who certified this form.
10. If there is no penalty for noncompliance, Section 450 of the Companies Act, 2013 will apply.

Who is required to submit Form PAS 6?

Within 60 days of the end of the half-year, all unlisted public companies must file PAS 6 with the Registrar of Companies as a reconciliation of share capital audit report, along with a fee as specified in the Companies (Registration Offices and Fees) Rules 2014, and the form must be duly certified by a company secretary or a chartered accountant in practice.

After applying for a depository, every unlisted business should dematerialize in accordance with clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996.

Every unlisted public company must guarantee that – payments to the depository, registrar, and agent have been paid on time and in accordance with the agreement.

• must keep a security deposit of fees to be paid to the company’s depository and registrar.
• must follow the rules, regulations, and other modifications published by the regulatory authorities as they become available.[3]

Conclusion

Except for exempted unlisted public businesses and firms that are explicitly exempted, the FORM PAS-6 allows us to submit the Audit of Reconciliation of Share Capital of an Unlisted Public Company. This form must be filled out carefully since it includes specific information on the Issuer Company’s securities and also involves third parties such as NSDL and/or CDSL.

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References:

[1] CS Divesh Goyal, Reconciliation of Share Capital Audit Report- Form PAS-6, TaxGuru (July 21^st,2020) https://taxguru.in/company-law/reconciliation-share-capital-audit-report.html

[2] CS Divesh Goyal, Reconciliation of Share Capital Audit Report- Form PAS-6, TaxGuru (July 21st,2020) https://taxguru.in/company-law/reconciliation-share-capital-audit-report.html

[3] CA Portal, Reconciliation of Shares Capital Audit Report: Form PAS 6, CA Portal Blog (July 25^th 2020) https://caportal.saginfotech.com/blog/reconciliation-shares-capital-audit-report-form-pas-6/