MCA Extends Deadline for Dematerialization of Private Company Shares to June 30, 2025.

The Ministry of Corporate Affairs (MCA) has officially extended the deadline for the mandatory dematerialization of securities for private companies. According to the latest notification issued on February 12, 2025, the new compliance deadline has been pushed to June 30, 2025. This amendment revises the Companies (Prospectus and Allotment of Securities) Rules, 2014, specifically Rule 9B, which mandates dematerialization for specific categories of private companies.

Key Highlights of the MCA Notification

The MCA’s latest update extends compliance timelines, offering clarity and flexibility to private companies transitioning to electronic securities under the mandatory dematerialization framework.

Extension Until June 30, 2025

The deadline for compliance with Rule 9B(2) has been extended from March 31, 2023, to June 30, 2025. This provides private companies (other than small and producer companies) with more time to complete the dematerialisation of securities and obtain ISIN (International Securities Identification Number).

Applicability of the Rule

All private companies, excluding small companies and producer companies, are required to comply. Companies that intend to issue new shares, transfer shares, or make any alterations in their capital structure must do so only in dematerialised form.

The objective of the Amendment

To ease the transition for private companies that have not yet complied. To ensure greater market transparency and alignment with regulatory frameworks for public companies. To facilitate smooth investor participation and digital securities transactions.

What is the Dematerialization of Shares?

Dematerialization is the process of converting physical share certificates and other securities into an electronic format, eliminating the need for paper-based documents. Once dematerialized, these securities are held in a demat account, which functions like a digital repository for financial instruments.

A depository is an entity that holds securities in an electronic form and facilitates seamless transactions. It ensures security, transparency, and ease of trading. In India, depositories are governed under the Depositories Act of 1996 and regulated by the Securities and Exchange Board of India (SEBI).

The two SEBI-registered depositories in India are:

NSDL (National Securities Depository Ltd.) – Primarily linked with the National Stock Exchange (NSE).

CDSL (Central Depository Services (India) Ltd.) – Associated with the Bombay Stock Exchange (BSE).

Rule 9B and Applicability of Mandatory Dematerialization for Private Companies

In October 2023, the Ministry of Corporate Affairs (MCA) introduced Rule 9B under the Companies (Prospectus and Allotment of Securities) Rules, 2014, making it mandatory for certain private companies to dematerialize their securities. This move aligns private companies with the corporate governance and compliance standards traditionally applicable to public companies.

Applicability of Dematerialization of Shares

The dematerialization of shares applies to various entities within the securities market, ensuring transparency, security, and ease of transactions.

Public Companies

All public companies in India are mandated to hold and transact their securities in dematerialized form.

Private Limited Companies

All private limited companies, except those categorised as small companies, must comply with dematerialization regulations.

Holding and Subsidiary Companies

Any private limited company that is a holding company or a subsidiary of another corporate entity must dematerialise its shares. This applies even if the company qualifies as a small company under financial thresholds.

Small Companies – Exception to Dematerialization

A small company is defined as a private limited company that meets the following financial criteria:

– Paid-up capital: ₹4 crore (INR 40,000,000) or less

– Turnover: ₹40 crores (INR 400,000,000) or less in the preceding financial year

Small companies are exempt from mandatory dematerialisation unless they are:

– A holding company of another entity

– A subsidiary company of another corporate body

In these cases, they must comply with dematerialisation requirements, irrespective of their financial position.

Last Date for Dematerialization of Physical Shares

Considering the challenges faced by companies in executing the dematerialisation process, the Ministry of Corporate Affairs (MCA) has extended the compliance deadline. The new last date for mandatory dematerialisation of shares is June 30, 2025, revised from the earlier deadline of September 30, 2024.

Implications of the Deadline Extension for Private Companies

The deadline extension provides private companies extra time to complete dematerialization, avoid penalties, and ensure all future share-related activities remain fully compliant with regulatory norms.

For Non-Compliant Private Companies:

Companies that have not obtained their ISIN or completed dematerialisation now have extra time to comply. They must coordinate with depositories (NSDL/CDSL), registrar & transfer agents (RTAs), and professionals to initiate the dematerialisation process.

For Companies Already in Compliance:

Those who have already obtained their ISIN and dematerialised securities will not be affected. However, they should continue ensuring that any new share issuance or transfer occurs only in dematerialised form.

How to Convert Physical Shares into Demat?

Converting physical share certificates into electronic form is a simple and efficient process. Below is a step-by-step guide to help you complete the dematerialization process:

Step 1: Open a Demat Account

To begin, you need to open a Demat account with a Depository Participant (DP), such as a bank, stockbroker, or financial institution. This account will hold your shares in electronic form.

You must fill out an account opening form and provide essential details, including:

– Bank account details (Account number, IFSC code, Bank name, and Branch address)

– Identity and address proof (such as Aadhaar, Passport, or Voter ID)

– PAN card

Once your Demat account is successfully opened, you’re ready to begin the dematerialization process.

Step 2: Submit a Demat Request Form (DRF)

You’ll need to collect a Demat Request Form (DRF) from your Depository Participant (DP), fill it out accurately, and sign it. Be sure the names and signatures match exactly with those on your physical share certificates and the company’s records to avoid rejection.

Step 3: Verification and Processing

Your DP will verify the DRF and supporting documents. If everything is in order, they’ll generate a Dematerialization Request Number (DRN), which you can use to track the status of your request.

Step 4: Forwarding to Registrar and Share Transfer Agent (RTA)

Next, your DP sends the physical certificates along with the DRF to the Registrar and Share Transfer Agent (RTA) of the issuing company. The RTA will authenticate the documents and begin processing the dematerialization.

Step 5: Conversion to Electronic Form

Upon successful verification, the RTA cancels the physical share certificates and converts them into electronic form. This reduces the risk of loss, theft, or fraud associated with physical securities.

Step 6: Credit to Your Demat Account

Finally, your shares are credited to your Demat account, completing the process. You can now buy, sell, or transfer shares electronically, with greater security and speed.

Penalties for Non-Compliance with Dematerialization Requirements

Failing to comply with Rule 9B under the Companies Act, 2013, could result in significant consequences for private companies:

Restrictions on Securities Transactions

Companies will be restricted from issuing new securities, including bonus shares or rights issues, unless in dematerialized form.

Shareholder Limitations

Shareholders with physical shares may be unable to sell, transfer, or participate in new capital issues.

Monetary Penalties

– ₹10,000 as an initial penalty

– ₹1,000 per day as a continuing penalty (capped at ₹2,00,000)
Officers in default can also be held personally liable.

Conclusion

The announcement that the physical shares to demat deadline extended to June 30, 2025, gives private companies much-needed breathing room to comply with the latest MCA regulations under Rule 9B. This extension allows additional time to dematerialize shares, obtain an ISIN, and avoid transactional restrictions and monetary penalties.

At Crystal Peak Wealth, we assist businesses and shareholders in making this transition smooth and stress-free. From guiding you through paperwork to coordinating with Depository Participants and RTAs, we ensure every step is compliant and seamless. We also emphasise the importance of Dematerialization Of Physical Shares as part of sound corporate governance and future-ready wealth management.

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