Case Study: ROC imposes 500,000 fine on Company for Non-Dematerialisation of shares

November 10, 2025

In today’s digital era, companies are expected to comply with laws that promote transparency and efficiency. Yet, several companies continue to overlook these mandates, risking serious penalties. A recent case involving Kross Limited has brought this issue to the forefront. The Registrar of Companies (ROC) initiated action against the company for transferring securities without ensuring they were first dematerialised, as required under the Companies Act, 2013. This case serves as a stark reminder of the consequences of non-compliance and highlights the need for companies to stay aligned with statutory requirements.

Overview of the Company:

M/S Kross Limited was incorporated in the state of Jharkhand as Kross Manufacturing (India) Private Limited as a Private company limited by shares on the ninth day of May 1991 under the provisions of the Companies Act, 1956 and consequently upon conversion of the Company from Private limited to Public Limited Company on 17th January 2017 and the name was changed to Kross Limited. The Company is registered with the Registrar of Companies, Jharkhand, and the Registrar of Companies office is situated in Ranchi.

Legal Provisions Involved:

Section 29 of the Companies Act, 2013: Public offer of securities to be in dematerialised form Every company making public offer of securities and such other class of companies as may be prescribed (Rule 9A) shall issue securities only in dematerialised form by complying with the provisions of the Depositories Act, 1996 (22 of 1996) and the regulations made thereunder.

Any companies other than those mentioned above have the option to keep securities either in physical form or dematerialised form unless further prescribed.

Rule 9A of Companies (Prospectus and Allotment of Securities) Rules,2014: Issue of securities in dematerialised form by unlisted public companies.

• Every unlisted public company shall issue securities only in dematerialised form
• Every unlisted public company making any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer shall ensure that before making such offer, entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised
• Every holder of securities of an unlisted public company,

  (a) who intends to transfer such securities on or after 2nd October 2018, shall get such securities dematerialised before the transfer; or

  (b) who subscribes to any securities of an unlisted public company (whether by way of private placement or bonus shares or rights offer) on or after 2nd October 2018 shall ensure that all his existing securities are held in dematerialized form before such subscription.

Section 450 of the Companies Act, 2013: Punishment where no specific penalty or punishment is provided.

In case of contravention of the provisions, the company and every officer of the company who is in default or such other person shall be liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person.

Facts and Timeline of the Case:



The order passed by the Registrar of Companies / Adjudicating Officer:

• The Registrar of Companies / Adjudicating Officer, after having come to the conclusion that the company and its directors had violated the provisions of Section 29 of the Companies Act, 2013 as admitted by the company in their response sent to the Registrar, imposed the penalty upon the company and its directors – in – default as per the table below (under section 450 of the Companies Act, 2013)

Documents required to be filed / Nature of Default	No. of days of Default	Maximum penalty on the Company	Maximum Penalty on Officers in default (Total)
Company to maintain its securities in dematerialized form as required under **section 29 of the Companies Act, 2013**	**1479 days** (from 01.10.2018 to 20.10.2022)	**Rs. 2,00,000**	Rs. 50,000 on each officer in default. (50,000 × 6) = **Rs. 3,00,000**
Total Penalty Imposed		**Rs. 2,00,000**	**Rs. 3,00,000**

• The company and its officers have been directed to pay the penalty within 90 days of receiving the order. Payment is to be made via e-payment on the MCA’s official website under the “Pay miscellaneous fees” category. Proof of payment must be submitted to the ROC’s office. The company has also been instructed to immediately rectify the default if it has not done so already.
• Kross Limited and the officers in default have the right to appeal the order within 60 days. Any appeal must be filed with the Regional Director, Eastern Region, Ministry of Corporate Affairs, in Kolkata. The appeal should be in the prescribed Form ADJ and must include a certified copy of the order.
• Failure to pay the penalty within the specified timeframe could result in further legal consequences. Section 454(8) of the Companies Act outlines the potential outcomes of non-payment, which could include additional fines or legal action.

Recent Update: Rule 9B – Demat Mandate Extended to Private Companies

The Ministry of Corporate Affairs introduced Rule 9B on October 27, 2023, under the Companies (Prospectus and Allotment of Securities) Rules, 2014.

As per Rule 9B, all private limited companies, except those categorized as small companies, must comply with dematerialization regulations. Also, private limited company that is a holding company or a subsidiary of another corporate entity must dematerialize its shares, even if the company qualifies as a small company under financial thresholds.

The original deadline for the process was September 30, 2024, but it has now been extended to June 30, 2025.

For a comprehensive understanding of dematerialization requirements for private companies, we recommend reading our earlier article: Dematerialization of shares for Private Companies

Conclusion

The case of Kross Limited is a strong reminder that companies must follow the rules about keeping and transferring shares in digital (demat) form. Ignoring these legal requirements can lead to serious penalties and damage to the company’s reputation. These penalties reflect the seriousness with which the ROC views non-compliance with dematerialization requirements.