The Union government is trying to crack down on ‘benami’ transactions by making it mandatory for unlisted public companies to issue and transfer shares only in dematerialised form (demat, or stored electronically).
In a statement, the Ministry of Corporate Affairs (MCA) said this rule will come into effect on October 2.
“The MCA has taken this step as a measure for further enhancing transparency, investor protection and governance in the corporate sector,” the statement read. “The rules in this regard have been amended accordingly.”
Public unlisted companies comprise just under a lakh of the 11-lakh plus firms registered with the Registrar of Companies (RoC). Around 8.000 companies are listed across the various stock exchanges in the country.
According to the MCA, apart from facilitating easier transfer and pledging of shares, its latest move is expected to prevent malpractices such as benami shareholding and backdated issuance of shares.
A ‘benami’ property or security is typically one that is bought in someone else’s name and is used to park untaxed wealth or black money. The buyer, on paper, is called a ‘benamdar.’
The ministry said the new norm will also eliminate risks associated with physical certificates such as loss and theft.
The Narendra Modi government had last year hinted at a major crackdown on benami transactions.
The Centre has separately been targeting shell companies and has struck more than 2.5 lakh such firms off the records over the past 18 months.
MCA secretary Injeti Srinivas recently told VCCircle that the government will use a law meant for companies to scrutinise suspicious limited liability partnerships (LLPs) as part of a wider crackdown on shell firms.