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Government looking to dematerialise shares of unlisted cos to curb black money

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Till now, only listed companies were required to convert all their shares into demat form under SEBI’s norms.

The central government is looking to mandate the dematerialisation of shares for unlisted companies as a part of the larger crackdown on black money. The plan will initially be rolled out for public limited companies.

According to an Economic Times report, the Ministry of Corporate Affairs (MCA), the Securities and Exchange Board of India (SEBI) and depositories have been discussing this matter for some time now.

A person privy to the proceedings said that they will officially meet next week to discuss the time frame involved and other issues.

Dematerialisation, or demat, is the conversion of physical stocks into electronic form. Creating a digital trail is an effective method to detect, track and prevent fraudulent stock activities.

Till now, only listed companies were required to convert all their shares into demat form under SEBI’s norms. However, there are around 6,000 listed companies in India, compared with over 70,000 unlisted public limited companies and over a million private limited companies.

โ€œThere are cases where valuation of unlisted shares is priced unreasonably high and finance is raised to keep these securities as collateral as a conduit to convert black money,โ€ said Sumit Agrawal, a partner at Suvan Law Advisors.

โ€œThen there are cases of duplicate shares existing and the company also finds it difficult to weed them out. Many FIRs exist on these issues in the criminal justice system,โ€ Agrawal added.

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