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SEBI does away with requirement for RTAs to report frozen folios under Benami Transactions Act or PMLA

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SEBI through circular dated March 16, 2023 (superseded by Master Circular dated May 17, 2023), had inter alia made it mandatory for all holders of physical securities in listed companies to furnish PAN, Nomination, Contact details, Bank A/c details and Specimen signature for their corresponding folio numbers. The SEBI Circular further mandated that the folios where the above stated documents were not made available on or after October 01, 2023 shall be frozen by the relevant Registrar to an Issue and Share Transfer Agent (RTA).

Further, the SEBI Circular also mandated that the frozen folios shall be referred by the RTA / listed company to the administering authority under the Benami Transactions (Prohibitions)  Act, 1988 (BTA) and / or Prevention of Money Laundering Act, 2002 (PMLA), if they continue to remain frozen as on December 31, 2025.

However, in response to representations from the Registrars’ Association of India (RAIN) and investors, to address unintended challenges arising from freezing folios and referring frozen folios under the BTA, and / or the PMLA, SEBI through a recent circular has amended the master circular to:

(i) Remove the term ‘freezing/frozen’ has been removed; and

(ii) Remove the provision for referral of folios under the BTA, and / or PMLA.

This recent SEBI circular amending the master circular as well as the master circular has been issued under Section 11(1) of the SEBI Act, 1992.

Readers may want to read about the various orders which have been passed by SEBI in respect of RTAs and the extent of their liability in matters where physical securities were fraudulently dematerialised by persons either claiming to be a folio holder (when in fact the real holder had passed away) or claiming to be an heir / relative of such deceased folio holder.

Readers may also want to read about the constitutional scope of delegated legislation and whether a master circular can be amended subsequently by way of a circular itself.

A copy of the SEBI Circular is enclosed herewith.

Readers are welcome to share their views with Regstreet Law Advisors at info@regstreetlaw.com

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