SEBI has decided to empower depositories to take penal action against companies that do not properly reconcile their demat and physical shares and thus expose the equity market and investors to possible frauds.

A senior official said the depositories have the mandate to help the companies convert their physical shares into de-materialised or demat form and thereafter maintain those shares, while the companies are required to reconcile their total share capital, including physical and demat shares, in a proper manner.

However, discrepancies have come to light in the share capital reconciliation of hundreds of companies. Depositories and stock exchanges have already been asked to take necessary actions against defaulting companies.
 

Sebi is of the view that certain regulations need to be amended to empower the depositories to take penal actions in such cases. A proposal to this effect has been approved by Sebi board and the necessary amendments would be made soon to Sebi (Depositories and Participants) Regulations