Section 29 - Public Offer of Securities to be in Dematerialised Form
# Section 29 - Public Offer of Securities to be in Dematerialised Form
## Why Dematerialisation?
Physical share certificates created problems of forgery, theft, transfer delays and stamp duty. The 2013 Act mandates that for certain categories of companies, securities can only exist in electronic (demat) form held through a depository.
## Categorisation
Listed Public Company -> Demat (under SEBI regime)
Unlisted Public Company -> Demat (Section 29(1A) + Rule 9A)
Private Company -> Demat optional (Section 29(2))
## Statutory Mandate - Section 29(1)
The following companies shall issue securities only in dematerialised form:
1. Every company making a public offer - securities shall be issued only in demat form.
2. Such other class or classes of public companies as may be prescribed - currently, every unlisted public company.
## Section 29(1A) - Holding & Transfer
For an unlisted public company: securities shall be held in dematerialised form, and any transfer must also be in demat form.
## Section 29(2) - Optional Demat
Any other company (private company not covered above) may issue securities in demat or in physical form - its choice.
## Rule 9A - Preconditions Before Corporate Actions
Before making any offer for issue of securities, buy-back, bonus or rights issue, every unlisted public company must ensure that the entire holding of securities of its promoters, directors and KMP has been dematerialised.
## Existing Holders
On or after 02-10-2018, every shareholder of an unlisted public company who intends to transfer or subscribe to further securities must first get the existing securities dematerialised.
## Compliance Obligations
Maintain a security deposit with the depository / RTA.
Pay the fees of the depository, RTA and security deposit.
File Form PAS-6 (Reconciliation of Share Capital Audit Report) with the ROC within 60 days of each half-year, duly certified by a practising CA / CS, reconciling issued capital with demat holdings and explaining any difference.
Until payment of all fees is made, the unlisted public company shall not make any further offer, buy-back, bonus or rights issue.
Worked example
### Example 1
Example 1 - Public Offer by a Listed Company
XYZ Ltd., a listed public company, plans an IPO of Rs. 500 crore.
Treatment: Under Section 29(1)(a), securities issued under a public offer must be in dematerialised form only - physical certificates cannot be issued.
### Example 2
Example 2 - Transfer in Unlisted Public Company
Mr. A holds 1,000 physical shares of PQR Ltd. (unlisted public company). He wishes to transfer them to Mr. B.
Treatment: Under Section 29(1A) and Rule 9A, Mr. A must first dematerialise the shares; only then can the transfer be effected.
### Example 3
Example 3 - Private Company Issuing Shares
LMN Pvt. Ltd. issues 1,00,000 equity shares to two new investors.
Treatment: A private company is not covered by Section 29(1) or (1A). Under Section 29(2), it may issue in demat or in physical form.
### Example 4
Example 4 - Bonus Issue by Unlisted Public Company
DEF Ltd. (unlisted public) plans a bonus issue. Two of its directors still hold physical shares.
Treatment: Under Rule 9A, holdings of all promoters, directors and KMP must be in demat before any further issue or bonus. The bonus issue cannot proceed until those directors dematerialise.
⚠️ Common exam mistakes
Thinking Section 29 applies to all companies - a private company can still issue in physical form unless it elects otherwise.
Forgetting that Section 29(1A) requires holding and transfer in demat for unlisted public companies - not just issuance.
Missing the Rule 9A precondition: promoters/directors/KMP must dematerialise their holdings before any further issue, buy-back, bonus or rights offer.
Overlooking the PAS-6 half-yearly reconciliation requirement.
Confusing 'listed' (SEBI-regulated demat regime) with 'unlisted public' (Rule 9A of the 2013 Act).
Bare-Act text Section 29 · Companies Act, 2013 read with Rule 9A of Companies (Prospectus and Allotment of Securities) Rules, 2014 · click to expand
Section 29(1): Notwithstanding anything contained in any other provisions of this Act,-
(a) every company making public offer; and
(b) such other class or classes of public companies as may be prescribed,
shall issue the securities only in dematerialised form by complying with the provisions of the Depositories Act, 1996 and the regulations made thereunder.
Section 29(1A): In case of such class or classes of unlisted companies as may be prescribed, the securities shall be held or transferred only in dematerialised form in the manner laid down in the Depositories Act, 1996 and the regulations made thereunder.
Section 29(2): Any company, other than a company mentioned in sub-section (1), may convert its securities into dematerialised form or issue its securities in physical form in accordance with the provisions of this Act or in dematerialised form in accordance with the provisions of the Depositories Act, 1996 and the regulations made thereunder.