Dematerialisation of unlisted shares, MCA mandate explained.

Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules 2014 (introduced via Companies PAS Second Amendment Rules 2023, effective 27 October 2023):

• Every unlisted public company AND private company (other than small company and government company) must:
•   — Issue securities only in dematerialised form.
•   — Facilitate dematerialisation of existing shareholders' securities before any new issuance / transfer / buyback / transmission.
• Effective for private companies from 30 September 2024 (extended once from 30 September 2024 to accommodate implementation).
• Deadline for existing holders to demat: 30 September 2024 (post-notification; some extensions granted for specific company sizes).

Exempt from Rule 9B:

• Small companies (paid-up capital up to INR 4 crore + turnover up to INR 40 crore under Section 2(85)).
• Government companies.
• Nidhi companies and specific other categories per MCA notification.

In practice, most mid-sized Indian startups and growth-stage private companies cross the small-company threshold once their funding round or revenue scales — Rule 9B applies.

• Any new share issuance / allotment cannot proceed in physical form — must be demat. Means every subsequent fundraising round, ESOP allotment, bonus issue, rights issue requires demat setup first.
• Share transfers blocked — share transfer in physical form is not permissible under Rule 9B.
• Buyback blocked.
• Transmission (on shareholder death) blocked.
• Form PAS-6 (Reconciliation of Share Capital Audit Report) filing — mandatory half-yearly filing starting 60 days from end of each half-year. Non-filing attracts penalty.
• Potential Section 450 penalty under Companies Act (default where no specific penalty is specified) — up to INR 10,000 and INR 1,000 per day of continuing default.

Operational impact: your Series A term sheet closes, you need to allot new preferred shares, and demat is not set up. The round delays by 30-60 days while demat gets completed. Common in 2024-2025; still happens.

1. Obtain ISIN (International Securities Identification Number) for each class of security from NSDL or CDSL. Submit application via a Registrar & Transfer Agent (RTA). Fee ~INR 10,000-20,000 one-time per ISIN.
2. Appoint a Depository Participant (DP) — the company itself engages a DP (NSDL / CDSL registered broker) to facilitate demat.
3. Communicate to all shareholders: formal letter + email instructing them to open demat accounts and submit demat request through their respective DPs.
4. Shareholders open demat accounts (if they don't have one) with any DP of their choice; submit Dematerialisation Request Form (DRF) + physical share certificate to the DP.
5. DP forwards demat request to the company's RTA.
6. Company's RTA / company verifies and confirms demat; shares credited to shareholder's demat account.
7. Physical share certificates are cancelled by the company and defaced.
8. File Form PAS-6 with ROC half-yearly within 60 days of end of each half-year (30 September and 31 March), reporting demat reconciliation.

Timeline: 30-90 days end-to-end depending on shareholder responsiveness and number of folios. For companies with foreign shareholders or scattered small holders, longer.

• Shareholders can't be reached — especially angel investors or ESOP holders who have moved jobs/countries. Chase relentlessly; document attempts.
• Share certificates lost — original physical certificate missing. Need to issue duplicate under Rule 6, which has its own procedure (public notice, indemnity bond, Rule 6 cert).
• Foreign shareholders — need to open NRO / NRE-linked demat account or hold through FPI route. Longer timeline. KYC and FATCA / CRS declarations.
• Shareholders' bank account mismatch — demat KYC requires PAN + bank linkage; small folders often have outdated info.
• ISIN approval delay — NSDL / CDSL can take 15-30 days. Apply early.
• Form PAS-6 skipped — many companies get the demat done but forget the half-yearly PAS-6 filing. Penalty accrues.

Last updated: 2026-10-12.