The shares he owned but could no longer sell
A founder wants to sell a slice of his private company to an incoming investor. Clean shares, a willing buyer, an agreed price. Then his CA asks one question — "are the shares in demat?" — and the deal stalls. Because since a rule most private companies never noticed, physical share certificates in a non-small private company have quietly stopped working. You cannot transfer them. The company cannot issue fresh shares against them. A rights issue, a bonus, an ESOP allotment, a buyback — all frozen until the paper is converted to electronic form. The rule is Rule 9B, the deadline to comply has already passed, and thousands of private companies are sitting on share certificates that are now, for practical purposes, unusable. Here is what Rule 9B is, who it binds, what compliance actually takes, and what it costs to have ignored it.
What Rule 9B actually is
Rule 9B was inserted into the Companies (Prospectus and Allotment of Securities) Rules, 2014 by an MCA notification dated 27 October 2023, under the authority of Section 29 of the Companies Act, 2013. In plain terms, it does for private companies what Rule 9A already did for unlisted public companies: it makes dematerialisation of shares compulsory. A company in scope must convert all its existing securities from physical certificates into electronic form held in a depository, and from the cut-off date it can only issue, transfer or deal in securities in demat form. Physical share certificates do not become illegal to hold — but they become impossible to use, because every corporate action and every transfer now runs through the demat system. This is the single biggest change to how private-company shares work in a decade, and it caught a large number of companies completely unprepared.
Who must comply — and the small-company escape hatch
Rule 9B applies to every private company that is not a small company (government companies are outside it, and producer companies were given a longer runway, up to 31 March 2028). The escape hatch, then, is the small company definition: a private company whose paid-up share capital does not exceed ₹4 crore and whose turnover does not exceed ₹40 crore. Stay under both lines and Rule 9B does not bite. Cross either one — and many growing startups and family companies quietly have — and you are in scope. Two traps catch people here. First, the test is on both capital and turnover, and turnover creeps up unnoticed. Second, a company that is a holding or subsidiary company can never be a "small company" regardless of its size, so a tiny holding entity in a group structure is squarely caught. If you are not certain which side of the line you sit on, that is the first thing to establish, because everything else follows from it.
What compliance actually involves: RTA, ISIN, PAS-6
Dematerialisation is not a single form; it is a small project with three moving parts. First, the company appoints a SEBI-registered Registrar and Transfer Agent (RTA) and connects with a depository — NSDL or CDSL — which is the electronic vault the shares will live in. Second, it obtains an ISIN (International Securities Identification Number) for each class of security it has issued — one for equity, separate ones for each class of preference shares or debentures. Third, the company facilitates the actual demat of holdings, and the practical order matters: the promoters, directors and key managerial personnel dematerialise first, because the company cannot do any fresh issue or buyback until at least their shares are in demat form. On top of the one-time conversion sits an ongoing obligation: the company must file Form PAS-6, the half-yearly reconciliation of share capital audit report, with the Registrar within 60 days of the end of each half-year, certified by a company secretary or chartered accountant. So Rule 9B is not "do it once and forget"; it adds a recurring filing to your compliance calendar for good.
The deadline already passed — what non-compliance costs now
This is the part that has changed since most articles were written. The original deadline was 30 September 2024 (eighteen months after the close of the financial year ending 31 March 2023). Because the depositories were overwhelmed and ISIN allotment was taking weeks, the MCA extended it by an amendment dated 12 February 2025 to 30 June 2025. That extended date has now gone. A non-small private company that has still not dematerialised is in default today, and the exposure has two layers. The monetary penalty is ₹10,000 on the company and on every officer in default, plus ₹1,000 per day of continuing default, capped at ₹2,00,000 for the company and ₹50,000 for an officer. The operational freeze is often worse: the company cannot make any fresh issue of securities, cannot buy back, cannot issue bonus or rights shares, and a shareholder holding physical certificates cannot transfer them or subscribe to any further issue until the shares are dematerialised. For a company mid-fundraise or planning an ESOP allotment, that freeze can stall the whole plan — which is exactly why "we'll get to it" has become an expensive position.
Where this sits in running a private company
Demat is now woven into the rest of your company-law compliance rather than sitting to one side. The most immediate link is share issuance: any fresh issue of shares — rights, bonus or private placement — must now be made in demat form, so demat is a precondition, not an afterthought, of raising capital. It also feeds your statutory records: the register of members and other statutory registers now have to reconcile with the depository position, which is the point of the half-yearly PAS-6. The new PAS-6 filing takes its place alongside your other periodic returns like the DPT-3 return of deposits and your AOC-4 and MGT-7 annual filings — all of which live on the annual compliance calendar. And because demat makes beneficial ownership traceable end to end, it reinforces the transparency that rules like significant beneficial owner reporting are built on.
How we handle it at RDA, Baner
At RDA Advisory, Baner, we run Rule 9B dematerialisation as a managed project, not a scramble. We first settle the threshold question — whether your company is genuinely small and exempt, or in scope — so you are not guessing. If you are in scope, we help appoint the RTA, coordinate the ISIN with NSDL or CDSL, sequence the demat so promoter and director holdings convert first and your issuances and buybacks are not frozen, and then keep the half-yearly PAS-6 filed on time so a one-time fix does not become a recurring default. If you have already missed the deadline, we work out the real penalty exposure and the fastest clean route back into compliance. Office No. 102, Snehraj Apartment, Baner, Pune 411045 · call +91 77570 45059.
Still holding physical share certificates? Get your company into demat before the next transaction stalls
Running a private company that has crossed the small-company thresholds? RDA confirms whether Rule 9B applies to you, runs the RTA appointment, ISIN and dematerialisation, and keeps your PAS-6 filings current — so your next fundraise, ESOP allotment or share transfer does not hit a wall. Book a consult at rdatax.in or call +91 77570 45059, or see our ROC & secretarial compliance service. RDA Advisory, Baner, Pune.
Verification note: The mandatory dematerialisation of securities by private companies arises under Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, inserted by MCA notification dated 27 October 2023 under Section 29 of the Companies Act, 2013. It applies to every private company other than a small company, a government company or (with an extended timeline to 31 March 2028) a producer company. A "small company" is a private company with paid-up share capital not exceeding ₹4 crore and turnover not exceeding ₹40 crore, but a holding or subsidiary company cannot be a small company. Compliance requires appointing a SEBI-registered Registrar and Transfer Agent, obtaining an ISIN for each class of security from a depository (NSDL/CDSL), dematerialising existing holdings, issuing and transferring securities only in demat form thereafter, and filing half-yearly Form PAS-6 within 60 days of each half-year. The compliance deadline, originally 30 September 2024, was extended to 30 June 2025 by the amendment dated 12 February 2025. Non-compliance attracts a penalty of ₹10,000 plus ₹1,000 per day of continuing default (capped at ₹2,00,000 for a company and ₹50,000 for an officer in default), and restricts fresh issues, buybacks, bonus/rights issues and transfers of physical securities. These rules, thresholds, forms and dates are periodically revised; confirm your company's current position with your CA or advisor before relying on it. This is general information, not legal or professional advice.
