ISIN and Mandatory Dematerialisation of Shares in India: Applicability, Legal Requirements and Restrictions on Corporate Actions

Introduction

Dematerialisation of securities has become an important aspect of corporate compliance in India. With the introduction of mandatory demat requirements for unlisted public companies and certain private companies, maintaining physical share certificates is no longer an unrestricted option for companies falling within the prescribed regulatory framework.

The Ministry of Corporate Affairs (MCA), through the Companies (Prospectus and Allotment of Securities) Rules, 2014, has prescribed specific requirements for the issue and holding of securities in dematerialised form. While Rule 9A governs unlisted public companies, Rule 9B extends these requirements to private companies other than small companies, subject to the prescribed exemptions.

These provisions have practical implications for companies undertaking share transfers, fresh allotments, rights issues, bonus issues, buybacks and other transactions involving securities.

Importantly, the applicability of dematerialisation requirements is not the same for every company. A small private company may continue to maintain and deal with its shares in physical form, whereas an unlisted public company or a private company covered under Rule 9B must comply with the prescribed demat requirements.

Understanding the applicable provisions is therefore essential before undertaking any transaction involving the company's share capital.

1. What Is ISIN and Why Is It Required?

ISIN stands for International Securities Identification Number. It is a unique 12-character alphanumeric identification code assigned to a particular class or type of security to facilitate its identification, electronic holding and transfer.

In India, securities are held electronically through the depository system operated by:

• National Securities Depository Limited (NSDL).
• Central Depository Services (India) Limited (CDSL).

Investors access their dematerialised securities through Demat Accounts maintained with registered Depository Participants (DPs).

A company required to facilitate dematerialisation must obtain an ISIN for each applicable type of security. For example, separate ISINs may be required for equity shares and different classes of preference shares.

An important distinction: ISIN registration and dematerialisation are related but different concepts. Obtaining an ISIN enables a particular security to be admitted into the depository system. Actual dematerialisation takes place when the shareholder's physical securities are converted into electronic holdings.

2. What Is Dematerialisation of Shares?

Dematerialisation, commonly known as demat, is the process of converting physical share certificates into electronic securities held in a shareholder's Demat Account.

Under the traditional system, companies issue physical share certificates and maintain records of shareholders through their statutory registers. Under the demat system, ownership and transfers of securities are recorded electronically through the depository mechanism.

Key benefits of dematerialisation

• Security: Reduces the risk of loss, theft, damage, forgery and duplication of physical share certificates.
• Convenience: Facilitates electronic holding and transfer of securities.
• Transparency: Improves the accuracy and traceability of shareholding records.
• Efficiency: Simplifies processing of transfers, allotments and other corporate actions.
• Better record management: Helps companies maintain more reliable securities and ownership records.

For companies covered by the mandatory dematerialisation provisions, demat is not merely an optional facility. It is a statutory compliance requirement.

3. Legal Framework Governing Dematerialisation in India

The principal statutory provisions governing dematerialisation include:

• Section 29 of the Companies Act, 2013.
• Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
• Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
• The Depositories Act, 1996.
• SEBI (Depositories and Participants) Regulations, 2018.
• Applicable SEBI regulations, directions and depository requirements.

Section 29 of the Companies Act, 2013 provides the statutory framework for the issue of securities in dematerialised form by companies falling within the prescribed categories.

The practical applicability of these requirements is principally determined by Rules 9A and 9B.

Rule 9A: Unlisted Public Companies

Rule 9A governs the issue and dematerialisation of securities by unlisted public companies.

Rule 9B: Private Companies Other Than Small Companies

Rule 9B extends the dematerialisation framework to private companies other than small companies, subject to the specific exemption for Government companies.

The two provisions should be examined separately because their applicability, exemptions and compliance timelines are not identical.

4. Demat Requirements for Unlisted Public Companies Under Rule 9A

Under Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014, every unlisted public company is required to:

• Issue securities only in dematerialised form.
• Facilitate dematerialisation of all its existing securities.
• Obtain an ISIN for each applicable type of security.
• Make the necessary arrangements with a depository and Registrar and Transfer Agent (RTA).
• Inform existing security holders about the availability of the dematerialisation facility.
• Comply with applicable depository, SEBI and filing requirements.

What happens to existing physical shares?

An unlisted public company covered by Rule 9A must facilitate conversion of its existing securities into dematerialised form.

Further, under Rule 9A(3):

• A shareholder intending to transfer securities on or after 2 October 2018 must dematerialise those securities before the transfer.
• A shareholder subscribing to additional securities, whether through private placement, bonus issue or rights issue, must ensure that all existing securities held by that shareholder are in dematerialised form before such subscription.

Consequently, a covered unlisted public company cannot ordinarily process a transfer of its securities on the basis of physical share certificates.

Demat requirement before corporate actions

Rule 9A(2) specifically requires an unlisted public company proposing any of the following transactions to ensure that the entire holding of securities of its promoters, directors and key managerial personnel (KMP) is held in dematerialised form before making the offer:

• Issue of any securities.
• Buyback of securities.
• Issue of bonus shares.
• Rights offer.

This requirement is particularly important for companies planning to raise additional capital or restructure their shareholding.

Exemptions under Rule 9A(11)

Rule 9A does not apply to the following unlisted public companies:

• Nidhi companies.
• Government companies.
• Wholly owned subsidiaries.

The exemption must be examined with reference to the company's actual legal status and the conditions applicable to the relevant category.

5. Demat Requirements for Private Companies Under Rule 9B

One of the significant developments in Indian corporate law was the introduction of Rule 9B through the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023, notified on 27 October 2023.

Before this amendment, mandatory dematerialisation requirements under Rule 9A principally applied to unlisted public companies. With the introduction of Rule 9B, the MCA extended the framework to private companies other than small companies.

Accordingly, the fact that a company is privately held, has only a few shareholders or has never raised funds from the public does not, by itself, exempt it from dematerialisation requirements.

Which private companies are covered?

A private company is generally required to comply with Rule 9B if:

• It does not qualify as a small company under Section 2(85) of the Companies Act, 2013; and
• It is not covered by an applicable statutory exemption.

A company covered under Rule 9B is required to:

• Issue securities only in dematerialised form after its applicable compliance date.
• Facilitate dematerialisation of all its existing securities.
• Obtain an ISIN for each applicable type of security.
• Complete the necessary depository and RTA formalities.
• Ensure that the prescribed demat conditions relating to promoters, directors and KMP are fulfilled before specified corporate actions.
• Ensure that shareholders comply with demat requirements before transferring or subscribing to securities.
• File Form PAS-6 and comply with the other applicable requirements.

Compliance timeline under Rule 9B

Under Rule 9B(2), a private company which, on the last day of a financial year ending on or after 31 March 2023, is not a small company as per its audited financial statements for that financial year is required to comply within 18 months from the closure of that financial year.

However, the MCA subsequently provided specific extensions:

First extension: Producer Companies

The Companies (Prospectus and Allotment of Securities) Amendment Rules, 2024, notified through G.S.R. 583(E) dated 20 September 2024, provided a separate compliance period of five years from the closure of the relevant financial year for producer companies covered by the provision.

Second extension: Certain private companies

Through G.S.R. 131(E) dated 12 February 2025, the MCA provided that a private company, other than a Producer Company, which was not a small company as on 31 March 2023, could comply with Rule 9B(2) by 30 June 2025.

The extension was a specific relaxation for the identified category of companies and should not be treated as a general extension available to every private company.

Companies should therefore determine their applicable compliance date by examining the relevant financial year, audited financial statements, company classification and applicable provisos.

6. Who Qualifies as a Small Company? Revised Thresholds

The classification of a company as a small company is particularly important because small companies are excluded from the applicability of Rule 9B.

Section 2(85) of the Companies Act, 2013, read with Rule 2(1)(t) of the Companies (Specification of Definition Details) Rules, 2014, prescribes the relevant criteria.

With effect from 1 December 2025, the Companies (Specification of Definition Details) Amendment Rules, 2025, notified through G.S.R. 880(E), revised the prescribed financial thresholds.

The current thresholds are:

Particulars	Prescribed limit
Paid-up share capital	Not exceeding ₹10 crore
Turnover	Not exceeding ₹100 crore

Both conditions must be satisfied simultaneously. A company exceeding either of the prescribed limits will not qualify as a small company on the basis of these financial criteria.

Turnover is determined with reference to the profit and loss account for the immediately preceding financial year.

Companies excluded from the definition of small company

Even if a company satisfies the prescribed financial thresholds, it cannot qualify as a small company if it falls within the categories excluded under Section 2(85), namely:

• A public company.
• A holding company or subsidiary company.
• A company registered under Section 8 of the Companies Act, 2013.
• A company or body corporate governed by a special Act.

Therefore, a private company having paid-up capital of ₹1 crore and turnover of ₹5 crore will not automatically qualify as a small company if, for example, it is a subsidiary of another company or is registered under Section 8.

Important consideration for Rule 9B

The revised thresholds effective from 1 December 2025 should be considered when determining small-company status under the current law.

However, the revised thresholds should not be applied retrospectively to rewrite the historical eligibility criteria or compliance deadlines under the earlier Rule 9B extension applicable to companies that were not small as on 31 March 2023.

Companies should separately examine their historical compliance position and their current classification.

7. Which Companies Can Issue or Transfer Shares Without ISIN?

This is one of the most important practical aspects of dematerialisation compliance.

Not every company in India is required to obtain an ISIN. The requirement depends upon the company's classification, applicability of the relevant rule and the date from which compliance becomes mandatory.

The following table provides a practical overview:

Type of company	ISIN / Demat requirement	Can securities be dealt with in physical form?
Listed public company	Demat requirements under applicable securities laws	No, subject to applicable regulatory requirements
Unlisted public company	Rule 9A, unless exempt	No, for securities covered by Rule 9A
Private company other than small company	Rule 9B, after applicable compliance date	No, for securities covered by Rule 9B
Private company qualifying as a small company	Generally exempt under Rule 9B	Yes, subject to other applicable provisions
Government company	Exempt under the relevant demat rules	Generally yes, subject to other applicable laws
Nidhi company	Exempt under Rule 9A, if unlisted public company	Depends on its legal classification and other applicable requirements
Wholly owned subsidiary	Exempt under Rule 9A, where applicable	Depends on its legal classification and other applicable requirements
Section 8 private company	Generally covered by Rule 9B if not otherwise exempt	No, once its applicable Rule 9B compliance date has arrived

Important: The exemption for wholly owned subsidiaries is expressly provided under Rule 9A(11). It should not automatically be extended to a private company under Rule 9B. A private subsidiary of another private company may also be excluded from small-company status under Section 2(85), and consequently fall within Rule 9B.

Similarly, a private company that is a subsidiary of a public company is deemed to be a public company under the proviso to Section 2(71), subject to the applicable statutory framework.

The classification must therefore be established before concluding that a company can continue to issue or transfer shares in physical form.

8. Corporate Actions: Which Transactions Are Restricted Without Dematerialisation?

Dematerialisation requirements have a direct impact on the ability of companies to undertake transactions involving their share capital.

For companies covered by Rule 9A or Rule 9B, the following restrictions and requirements are particularly relevant.

A. Transfer of shares

Applicable provision: Rule 9A(3) and Rule 9B(4).

A shareholder intending to transfer securities of a company covered by the relevant rule must first convert the securities into dematerialised form.

Accordingly:

• Physical share transfers are not permitted for securities covered by the applicable demat requirement.
• The transfer must be processed through the depository mechanism.
• A shareholder cannot rely on a physical share certificate to complete a transfer after the applicable compliance date.

For exempt small private companies, physical share transfers may continue, subject to Section 56 of the Companies Act, 2013, the Articles of Association and other applicable requirements.

B. Fresh issue of shares / Private Placement

Applicable provision: Rule 9A(1), Rule 9B(1) and the respective corporate action provisions.

Companies covered by the demat requirements must issue securities only in dematerialised form after their applicable compliance date.

This applies to securities issued through:

• Private placement under Section 42.
• Preferential allotment under Section 62(1)(c).
• Other applicable methods of issue of securities.

In addition, before making an offer for issue of securities, the company must ensure that the entire holding of its promoters, directors and KMP is in dematerialised form.

Therefore, a covered company cannot continue issuing fresh shares through physical share certificates merely because its existing shareholders have not yet converted all their physical holdings.

C. Rights Issue

Applicable provision: Section 62(1)(a), read with Rule 9A(2) or Rule 9B(3), as applicable.

A company proposing a rights issue must ensure compliance with the applicable demat requirements.

Before making the offer, the entire holding of securities of its promoters, directors and KMP must be dematerialised.

Further, shareholders subscribing to the rights issue must ensure that all their existing securities are held in dematerialised form, as required by the relevant rule.

D. Bonus Issue

Applicable provision: Section 63, read with Rule 9A(2) or Rule 9B(3), as applicable.

Companies proposing to issue bonus shares must satisfy the prescribed dematerialisation conditions.

The entire holding of securities of promoters, directors and KMP must be dematerialised before making the offer.

The bonus shares issued by a company covered by the applicable rule must also be issued in dematerialised form.

E. Buyback of Shares

Applicable provision: Section 68, read with Rule 9A(2) or Rule 9B(3), as applicable.

A company proposing a buyback must ensure that the entire holding of securities of its promoters, directors and KMP is dematerialised before making the buyback offer.

The company must also comply with the other applicable buyback requirements, including the prescribed limits, sources of funds, approvals, declarations and filings.

Dematerialisation compliance is therefore an important preliminary requirement before initiating a buyback.

F. Other Corporate Actions

Transactions such as alteration of share capital, consolidation or subdivision of shares, issue of securities pursuant to a scheme of arrangement, merger or demerger and conversion of securities must be examined with reference to the applicable provisions.

Rule 9A and Rule 9B do not impose a blanket prohibition on every corporate restructuring transaction. However, where the transaction involves the issue, allotment, holding or transfer of securities, the applicable demat requirements must be followed.

Accordingly, companies should not assume that a transaction is outside the demat framework merely because it is undertaken pursuant to a restructuring or special resolution.

9. Can a Company Undertake Corporate Actions If It Has Not Obtained an ISIN?

A company covered by Rule 9A or Rule 9B should not proceed with an issue or other specified corporate action while ignoring its mandatory dematerialisation obligations.

The following practical distinction is important:

Companies exempt from mandatory dematerialisation

An eligible small private company, for example, may generally undertake the following transactions without obtaining an ISIN under Rule 9B:

• Issue of shares in physical form.
• Transfer of shares in physical form.
• Rights issue.
• Bonus issue.
• Buyback of shares.

These transactions remain subject to the relevant provisions of the Companies Act, 2013, applicable rules, the Articles of Association and other regulatory requirements.

Companies covered by mandatory dematerialisation

An unlisted public company governed by Rule 9A or a private company governed by Rule 9B must comply with the relevant demat requirements from its applicable compliance date.

In particular, such companies cannot issue fresh securities in physical form, and their shareholders cannot transfer or subscribe to securities in physical form in contravention of the applicable rules.

Further, the company must satisfy the promoter, director and KMP demat conditions before undertaking the specified offers or corporate actions.

Practical takeaway: The absence of an ISIN does not, by itself, determine whether a company can undertake a share-related transaction. The first question is whether the company is legally required to obtain an ISIN and whether its applicable compliance date has arrived.

10. Form PAS-6: Half-Yearly Reconciliation of Share Capital

Form PAS-6 is a half-yearly reconciliation of share capital filed by companies governed by the applicable dematerialisation provisions.

Under Rule 9A(8), read with Rule 9B(5), where applicable, the company is required to file Form PAS-6 with the Registrar of Companies within 60 days from the conclusion of each half-year.

The form is required to be duly certified by a practising Company Secretary or Chartered Accountant.

Reporting periods

Period	General due date
1 April to 30 September	29 November
1 October to 31 March	30 May

Purpose of Form PAS-6

The form facilitates reconciliation between the company's issued capital and the securities held in dematerialised form.

It covers relevant particulars such as:

• Details of issued capital.
• Details of securities held in dematerialised form.
• Details of securities held in physical form.
• Reconciliation of share capital.
• Differences, if any, between issued capital and dematerialised holdings.
• Relevant details of the company's depository arrangements.

The company must also immediately bring any difference observed between its issued capital and capital held in dematerialised form to the notice of the depositories.

It is important to note that merely obtaining an ISIN does not complete the company's continuing compliance obligations.

11. Documents and Procedure for Obtaining an ISIN

Obtaining an ISIN involves completing the necessary corporate, depository and RTA formalities.

The exact documentation may differ depending on the depository, RTA and nature of securities.

Step 1: Determine applicability

First, establish whether the company is governed by Rule 9A or Rule 9B and verify whether any exemption is available.

Step 2: Reconcile share capital records

Review the company's:

• Authorised share capital.
• Issued, subscribed and paid-up share capital.
• Shareholder register.
• Existing share certificates.
• Classes and types of securities.
• Allotment and transfer records.

Step 3: Appoint the required intermediaries

Identify the depository and complete the necessary arrangements with an eligible RTA, as applicable.

Step 4: Obtain Board approval

Pass the necessary Board resolution authorising the dematerialisation process and execution of the required agreements and documents.

Step 5: Submit the application

Submit the prescribed documents and application to the concerned depository through the applicable process.

Step 6: Obtain ISIN

Complete the verification and other formalities required by the depository and obtain an ISIN for each applicable type of security.

Step 7: Facilitate shareholder dematerialisation

Inform existing shareholders about the dematerialisation facility and provide the necessary information for conversion of physical securities into electronic holdings.

Step 8: Maintain continuing compliance

Ensure timely payment of depository and RTA fees, maintenance of the prescribed security deposit, filing of Form PAS-6 and reconciliation of share capital.

12. Consequences of Non-Compliance

Failure to comply with mandatory dematerialisation requirements can create significant operational and statutory difficulties for a company and its shareholders.

Some important consequences include:

• Inability to issue securities in physical form where demat is mandatory.
• Inability of shareholders to transfer covered securities in physical form.
• Restrictions on undertaking specified offers and corporate actions.
• Difficulties in processing fresh allotments, rights issues, bonus issues and buybacks.
• Non-compliance with the applicable PAS-6 filing requirements.
• Additional compliance costs and possible regulatory action.

Further, under Rule 9A(6), an unlisted public company that defaults in payment of the prescribed depository or RTA fees and maintenance of the required security deposit cannot make an offer of securities, undertake a buyback or issue bonus or rights shares until the outstanding payments are made.

Since Rule 9B(5) applies Rule 9A(4) to (10) mutatis mutandis to covered private companies, the corresponding requirements and restrictions also apply to such private companies.

The applicable statutory consequences and penalties should be examined separately with reference to the nature of the default and the relevant provision.

13. Important Compliance Checklist for Companies

Before undertaking any transaction involving securities, companies should verify the following:

• Whether the company is a public company or a private company.
• Whether Rule 9A or Rule 9B is applicable.
• Whether the company qualifies as a small company under the current definition.
• Whether any specific statutory exemption is available.
• Whether the applicable dematerialisation compliance date has arrived.
• Whether the company has obtained ISINs for all applicable types of securities.
• Whether promoters, directors and KMP hold their entire securities in dematerialised form before the specified corporate actions.
• Whether the shareholders proposing to transfer or subscribe to securities satisfy the applicable demat requirements.
• Whether Form PAS-6 has been filed within the prescribed timeline.
• Whether depository and RTA fees and security deposit requirements have been fulfilled.
• Whether the company's issued capital and dematerialised holdings are properly reconciled.

A review of these matters before initiating a share transfer, issue or restructuring can help avoid unnecessary delays and regulatory complications.

Conclusion

Mandatory dematerialisation has significantly changed the way Indian companies maintain and deal with their securities.

While Rule 9A applies to unlisted public companies, Rule 9B extends the requirement to private companies other than small companies, subject to the prescribed exemptions. The revised small-company thresholds effective from 1 December 2025 have also made it important for private companies to reassess their classification under Section 2(85) of the Companies Act, 2013.

For companies covered by these provisions, obtaining an ISIN, facilitating dematerialisation of existing securities, complying with shareholder-level requirements and filing Form PAS-6 are important aspects of ongoing corporate compliance.

Most importantly, companies should verify their demat applicability before undertaking any share-related corporate action. A transaction that may be undertaken in physical form by an exempt small private company may not be permissible in physical form for an unlisted public company or a private company covered by Rule 9B.

Timely assessment and proper compliance can help companies avoid disruption in share transfers, capital raising, buybacks and other corporate transactions.

Frequently Asked Questions

Is ISIN mandatory for every private limited company in India?

No. ISIN is generally mandatory for private companies covered by Rule 9B, i.e. private companies other than small companies, subject to the Government company exemption. A private company qualifying as a small company is generally outside the scope of Rule 9B.

Is ISIN mandatory for an unlisted public company?

Generally, yes. Rule 9A requires an unlisted public company to obtain an ISIN for each applicable type of security and facilitate dematerialisation of its existing securities, unless a specific exemption applies.

Can a small private company issue shares without ISIN?

Yes. A private company qualifying as a small company is generally exempt from Rule 9B and may issue shares in physical form, subject to the other applicable provisions of the Companies Act, 2013.

Can shares of a private limited company be transferred in physical form?

Yes, where the private company is outside the applicability of Rule 9B, such as an eligible small company. However, shareholders of a company covered by Rule 9B must dematerialise their securities before transferring them after the applicable compliance date.

Can a private company undertake a rights issue without obtaining an ISIN?

An eligible small private company may generally undertake a rights issue without an ISIN under Rule 9B, subject to Section 62 and other applicable requirements. A private company covered by Rule 9B must comply with the dematerialisation requirements before undertaking the offer.

Is dematerialisation mandatory for a Section 8 company?

A Section 8 company cannot qualify as a small company under Section 2(85). Accordingly, a Section 8 private company is generally covered by Rule 9B, unless an applicable exemption is available. Its securities must be dematerialised after the applicable compliance date.

Is Form PAS-6 mandatory for private companies?

Form PAS-6 is applicable to private companies governed by Rule 9B through Rule 9B(5), read with Rule 9A(8). Eligible small private companies outside Rule 9B are generally not required to file PAS-6 on this basis.

What is the revised small-company threshold?

With effect from 1 December 2025, the prescribed limits are paid-up share capital not exceeding ₹10 crore and turnover not exceeding ₹100 crore. Both conditions and the exclusions under Section 2(85) must be satisfied.

Can a company issue bonus shares without ISIN?

An eligible small private company may generally issue bonus shares without obtaining an ISIN under Rule 9B, subject to Section 63 and applicable rules. A company covered by Rule 9A or Rule 9B must comply with the prescribed demat requirements before the bonus offer.

Can a company undertake a buyback without ISIN?

An eligible small private company outside Rule 9B may generally undertake a buyback without an ISIN under that rule, subject to Section 68 and applicable rules. A company covered by Rule 9A or Rule 9B must satisfy the prescribed dematerialisation conditions before making the buyback offer.

What is the due date for filing Form PAS-6?

Form PAS-6 is generally required to be filed within 60 days from the conclusion of each half-year, i.e. for the half-years ending 30 September and 31 March.

Does obtaining an ISIN mean that all shareholders have converted their shares into demat form?

No. Obtaining an ISIN enables securities to be admitted into the depository system. Shareholders must separately complete the process of converting their physical holdings into dematerialised holdings.

Disclaimer: This article is intended for general informational purposes and does not constitute legal advice. The applicability of dematerialisation requirements, exemptions, compliance timelines and corporate action restrictions should be examined with reference to the company's specific circumstances and the latest applicable provisions, MCA notifications, SEBI regulations and depository requirements.