Dematerialisation of Shares in India

What does dematerialisation of shares mean?

Dematerialisation is the process of surrendering a physical share certificate and having the same shareholding credited electronically to a demat account held with a depository participant. The shares do not change hands and the shareholding does not change — only the form in which it is held.

Once a company’s securities are in demat form, the depository record becomes the operative record of holdings, transfers happen through the depository system rather than through a transfer deed, and the company issues no further physical certificates. The two depositories in India are NSDL and CDSL, and a company connects to them through a registrar and transfer agent.

The policy objective is traceability. Physical certificates can be lost, forged, transferred without a proper record or held through undisclosed arrangements. An electronic record with a unique ISIN per class of security makes the beneficial ownership of a private company far harder to obscure.

Which companies must dematerialise their shares?

The critical point is what counts as a small company. A company is not a small company if it is a holding company, a subsidiary, a Section 8 company, or a company governed by a special Act — regardless of how small its capital and turnover are. Founders routinely assume their two-person company is exempt and then discover that because it holds shares in another company, it is a holding company and therefore in scope.

Test your status against your audited financial statements, not against your impression of the company’s size. This is the single most common misclassification we see.

Have the small company thresholds changed?

Yes, and it matters directly for Rule 9B. The small-company definition in Section 2(85) sets a paid-up capital limit and a turnover limit, and those limits have been revised upward by notification more than once. The limits that applied when Rule 9B was introduced are commonly cited as ₹4 crore of paid-up capital and ₹40 crore of turnover, and a further revision reported to take effect from 1 December 2025 raises them to ₹10 crore and ₹100 crore.

We flag that revision as reported rather than settled — confirm the operative limits and their effective date against the current notification before concluding that your company has moved out of scope. The direction of travel is clear, but the date on which a company’s status changes decides whether it was in default for an intervening period.

• Check paid-up capital and turnover against the audited financial statements for the relevant financial year
• Confirm the thresholds and effective date in the notification applicable to that year
• Check the disqualifying categories separately — holding, subsidiary, Section 8, special Act
• Remember that a company can move into scope and out of scope in different years as it grows
• Where the company was covered in an earlier year, the obligation for that period does not disappear because the thresholds later rose

That last point is the one worth pausing on. A higher threshold going forward does not retrospectively cure a period during which the company was in scope and non-compliant.

What was the deadline for private company demat?

Rule 9B was inserted by an amendment notified on 27 October 2023, with an original compliance date of 30 September 2024. MCA extended that to 30 June 2025 by a notification dated 12 February 2025. That extended date has passed and no further extension has been notified.

Rule 9B also provides for companies that were not in scope on the original trigger. A private company that is not a small company as at the last day of a later financial year gets a period measured from the closure of that financial year to comply — commonly described as eighteen months. Confirm the precise period and starting point against the current rule text for your financial year, since this limb is quoted inconsistently.

If you were in scope and have not complied, stop treating this as a deadline to plan for. It is a default to remediate, and the remediation takes weeks because it depends on third parties.

How does a private company dematerialise its shares?

1. 1.Confirm applicability against the audited financials and the disqualifying categories
2. 2.Reconcile the register of members against every share certificate issued, and fix the gaps first
3. 3.Pass a board resolution approving dematerialisation and authorising the appointment of a registrar and transfer agent
4. 4.Appoint a SEBI-registered RTA and execute the tripartite agreement with the RTA and the depository
5. 5.Apply through the RTA for an ISIN for each class of security — equity, preference, debentures separately
6. 6.Complete depository onboarding with NSDL or CDSL and obtain the ISIN activation
7. 7.Intimate all existing shareholders and security holders that the company is covered, and ask them to open demat accounts
8. 8.Shareholders submit a dematerialisation request form with their original certificates to their depository participant
9. 9.The DP forwards the request to the RTA, the company verifies the holding, and the shares are credited electronically
10. 10.Cancel and retain the surrendered physical certificates, and update the register of members
11. 11.Ensure every subsequent issue, allotment, buy-back and transfer is done only in demat form
12. 12.File Form PAS-6 within 60 days of the end of each half-year, certified by a practising CS or CA

Step two is the one that determines how long the whole exercise takes. If the register of members does not reconcile to the certificates — because an old share transfer was never recorded, or a certificate was issued without an entry — the RTA cannot process the demat requests until the discrepancy is resolved.

What is an ISIN and why does the company need one?

An ISIN — International Securities Identification Number — is a unique twelve-character code identifying a specific security. Without an ISIN there is nothing for a depository to credit, so obtaining one is the gating step in the whole process.

• A separate ISIN is needed for each class and series of security, so equity and each class of preference shares are distinct
• The ISIN is obtained through the appointed RTA, which applies to the depository on the company’s behalf
• The application needs the company’s constitutional documents, the board resolution, the tripartite agreement and the current capital structure
• The capital structure in the application must reconcile exactly to the register of members and the MCA record
• ISIN activation and annual custody or maintenance charges are payable to the depository and the RTA
• Any later change in capital structure has to be intimated so the ISIN record stays current

Budget four to eight weeks from a clean start to an active ISIN, and longer where the register of members needs reconstruction. This is why a company planning a funding round or a secondary sale needs to start early — a deal timetable will not wait for depository onboarding.

What do shareholders have to do?

The company can obtain the ISIN on its own, but it cannot dematerialise a shareholder’s holding without that shareholder. Each holder must open a demat account and submit a request, and in a family or closely held company that is where the process stalls.

1. 1.Open a demat account with any depository participant — a bank or broker
2. 2.Complete KYC with PAN, address proof and photograph
3. 3.Fill the dematerialisation request form, one per certificate or per set
4. 4.Surrender the original share certificates, defaced as the DP directs
5. 5.Ensure the name on the demat account matches the name in the register of members exactly
6. 6.Follow up until the credit appears in the demat account statement

Name mismatches are the most frequent rejection reason — a certificate in a maiden name, an initial expanded on one document and abbreviated on another, or a joint holding whose order differs between the certificate and the demat account. Reconcile names before the requests go in, not after they are rejected.

The company should also handle the cases with no straightforward holder: shares of a deceased member where transmission was never completed, untraced shareholders, and certificates that cannot be located. Each needs its own remedy — transmission documentation, or the duplicate certificate process — before the holding can be dematerialised.

What is Form PAS-6 and when is it due?

PAS-6 is the half-yearly Reconciliation of Share Capital Audit Report. It reconciles the company’s issued capital as recorded in its own books against the holdings recorded by the depositories and the RTA, and it must be certified by a company secretary in practice or a chartered accountant in practice.

The window is 60 days from the end of each half-year. The return is due even where nothing happened in the period — no allotment, no transfer, no change in holdings. Inactivity is not an exemption, and a nil-movement half-year still needs a filed and certified PAS-6.

• Issued capital as per the company’s records at the start and end of the half-year
• Holdings in demat form with NSDL and with CDSL, and holdings still in physical form
• Changes during the half-year — allotments, transfers, buy-backs, capital reductions
• Whether the ISIN register has been updated and the ISIN maintained
• Whether there are delays or defects in the dematerialisation requests processed
• Whether any intimation to the depositories is still pending
• Reasons for any difference between the company’s records and the depository data
• Details of the RTA and the certifying professional

PAS-6 is worth treating as a control rather than a form. It is the only recurring point at which your register of members is formally reconciled against an independent record, and a difference it surfaces is almost always a real defect in your share records.

What is the penalty for not dematerialising shares?

Neither Rule 9A nor Rule 9B prescribes its own penalty, so the general penalty in Section 450 applies. Under Section 450 the company and every officer in default are liable to a penalty of ₹10,000, and where the contravention is continuing, a further ₹1,000 for every day after the first during which it continues.

Section 450 has historically been cited with an overall cap on the continuing amount, and commentary differs on whether and how that cap applies to a continuing demat default — some adjudication commentary treats the daily amount as running until compliance. Confirm the current position before assuming a ceiling, and in any case the daily accrual makes early remediation the cheaper course.

• Base penalty on the company and on each officer in default, plus a daily amount while the default continues
• A separate default for each half-year that PAS-6 was not filed, with additional fee on the form itself
• The company cannot make any further issue or offer of securities until existing securities are dematerialised
• Buy-back, bonus issue and rights issue are blocked while the company is non-compliant
• A holder of physical securities cannot transfer or subscribe to further securities until their holding is dematerialised
• The non-compliance appears as a finding in the audit report and in diligence

The commercial restrictions bite harder than the money. A company that cannot make a further issue cannot close a funding round, and a shareholder whose holding is still physical cannot sell. That is how most companies discover they are covered.

How does demat change share transfers and allotments?

The last row is the one to plan around. Once a company is covered, a shareholder holding a physical certificate has a holding they cannot move. If a secondary sale, an ESOP exercise or an exit is anywhere on the horizon, get the holders into demat well ahead of the transaction.

What does dematerialisation cost?

Figures are indicative and set by the depositories and the RTA rather than by statute, so they change from time to time and vary between service providers. The predictable ongoing cost is modest; the unpredictable cost is reconciling a register of members that has drifted, which is charged on effort.

What if our share records do not reconcile?

This is the real work in most private company demat exercises. Years of undocumented transfers, certificates issued without register entries, missing certificates and incomplete transmissions all have to be resolved before an ISIN application will reconcile, because the capital structure declared to the depository has to match the MCA record and the register of members exactly.

1. 1.Rebuild the shareholding history from incorporation — subscribers, each allotment, each transfer
2. 2.Match every allotment against the return of allotment filed for it
3. 3.Match every transfer against an executed and stamped instrument of transfer
4. 4.Identify certificates issued with no corresponding register entry, and the reverse
5. 5.Complete pending transmissions with the succession documentation required
6. 6.Run the duplicate certificate process for certificates that cannot be located
7. 7.Reconcile the resulting position to the paid-up capital shown in the last filed financial statements
8. 8.Regularise any pending MCA filing the reconstruction reveals

Start this before you appoint the RTA rather than after. A demat project that stalls at the ISIN stage almost always stalls here, and the clean-up is the same work whether it is done calmly in advance or under pressure mid-transaction. A CA consultation at the outset usually shortens the exercise considerably.

What is changing in dematerialisation compliance?

The direction of policy is towards universal dematerialisation of securities, and Rule 9B is the private-company step in that progression. The near-term variables are the small-company thresholds, which determine how many private companies are in scope, and the enforcement posture on the passed 30 June 2025 date.

MCA’s draft Companies (Incorporation) Amendment Rules, 2026, published for public consultation, propose consolidating a set of incorporation, change and conversion forms into two comprehensive filings. PAS-6 sits under the Prospectus and Allotment of Securities Rules and is not in that consolidation list, so the half-yearly return continues on its existing form. A broader MCA consultation on rationalising filings across the corporate lifecycle is also open at concept-note stage.

Neither is notified law. What is settled is that the demat obligation itself is in force, the compliance date for the originally covered set has passed, and the half-yearly PAS-6 cycle runs to 30 May and 29 November.

Why choose Arjun Filings for dematerialisation of shares?

Arjun Filings runs dematerialisation of shares as a checklist-first engagement: a qualified CA or CS scopes the work, tells you exactly which documents are needed, and reviews every form before it is signed and submitted. You get a named specialist, a status update at each stage, and a compliance calendar for whatever comes next.

• Specialist support for dematerialisation of shares
• Due-date calendar and penalty awareness
• Form review before DSC signing
• Status updates until acknowledgement