ISIN and Dematerialisation of Shares under Rule 9A/9B

What is ISIN?

ISIN, or International Securities Identification Number, is a globally recognized 12-character alphanumeric code that uniquely identifies a specific security. Introduced by the International Organization for Standardization (ISO) under ISO 6166, ISIN is essential for the identification, tracking, and settlement of securities across the world. Each ISIN is structured to represent the country of issuance, a unique identifier for the security, and a check digit for verification.

Structure of ISIN

An ISIN consists of 12 characters:

• First two letters: Represent the country code as per ISO 3166 (e.g., IN for India).

• Next nine characters: Unique identification code for the specific security.

• Last digit: A check digit for error detection.

For example, the ISIN for Reliance Industries Limited's equity shares is INE002A01018.

Why is ISIN Important?

Let's discuss the importance of ISIN:

Global Standardization

ISIN ensures a consistent and standardized identification of securities across global markets. This helps in seamless cross-border trading, reconciliation of transactions, and regulatory compliance across jurisdictions.

Mandatory for Dematerialization

In India, no security can be dematerialized without a valid ISIN. Companies must obtain an ISIN for each security type (e.g., equity, preference shares) to enable their electronic storage and trading.

Ease of Tracking and Settlement

ISIN simplifies the identification and tracking of securities in the depository system. It allows faster, secure, and more accurate settlement through depositories like NSDL and CDSL.

Regulatory Requirement

Regulators such as SEBI and MCA have made ISIN compulsory for demat compliance. As per Rule 9B, private companies must dematerialize their shares and obtain ISIN to meet statutory obligations.

How is ISIN Allotted?

To obtain an ISIN, a company must:

• Appoint a Registrar and Transfer Agent (RTA) or act as its own RTA.

• Submit an application to the depository (NSDL or CDSL) through the RTA.

• Provide key documents such as Certificate of Incorporation, PAN, Capital Structure, Board Resolution, and specimen of share certificates.

• Upon approval, the depository issues a unique ISIN for each security type.

Roles of Depositories, Depository Participants, and RTAs in Dematerialisation

In India’s dematerialisation ecosystem, three main entities play crucial roles: Depositories, Depository Participants (DPs), and Registrar and Transfer Agents (RTAs). Together, they form the infrastructure required to digitize and manage securities ownership in a safe, transparent, and efficient manner. For companies shifting from physical share certificates to electronic form, and for investors participating in the stock market, understanding these three players are important.

Who is a Depository?

A Depository is a central organisation that holds securities such as shares, debentures, and bonds in electronic form, much like a bank holds money. In India, there are two SEBI-registered depositories:

• National Securities Depository Limited (NSDL)

• Central Depository Services (India) Limited (CDSL)

These depositories are responsible for maintaining ownership records of dematerialised securities and ensuring the integrity and security of such holdings. They facilitate the electronic settlement of trades, allow for transfer of securities from one account to another, and ensure safekeeping and accurate record maintenance of investors’ holdings. Depositories operate through a network of Depository Participants (DPs), much like how a bank works through its branches or agents.

Who is a Depository Participant (DP)?

A Depository Participant is an intermediary between the investor and the depository. Investors do not interact directly with NSDL or CDSL. Instead, they open a Demat Account with a DP, who provides access to the depository’s services. DPs can be banks, brokerage firms, financial institutions, or other entities registered with SEBI. When an investor wants to dematerialise shares, buy new securities, or sell their holdings, it is the DP who handles these transactions on their behalf. The DP ensures that securities are credited to or debited from the investor’s demat account following the instructions given. They also provide essential services such as:

• Opening and maintaining demat accounts

• Processing dematerialisation and rematerialisation requests

• Providing transaction statements and holding reports

• Facilitating pledge and unpledge of securities

Who is the Registrar and Transfer Agent (RTA)?

A Registrar and Transfer Agent (RTA) is appointed by the issuing company (whose shares are being held or traded) to manage shareholder records and corporate actions. RTAs maintain detailed records of:

• Names and contact details of shareholders

• Number and type of securities held

• Transfer and transmission of shares

• Dividend payments, bonus issues, stock splits, and other corporate actions

They serve as a liaison between the company and the depository. When a company issues new shares or processes a corporate action, the RTA coordinates with NSDL/CDSL to update the records accordingly. RTAs also play an important role during the initial ISIN allotment and dematerialisation process by validating investor records and ensuring data integrity during the shift from physical to electronic form.

Advantages of Dematerialisation

The following are the advantages of Dematerialisation:

1. Eliminates Risk of Physical Loss or Damage

Dematerialisation removes the need for holding paper share certificates, which are prone to loss, theft, mutilation, or forgery. Electronic records are stored securely in demat accounts, ensuring that the ownership of shares is protected and verifiable at all times.

2. Faster and Simpler Share Transfers

In the demat system, transfer of shares takes place electronically through depositories like NSDL and CDSL. This is significantly faster than the manual process of endorsing and posting physical share certificates, saving both time and effort.

3. Lower Transaction and Administrative Costs

Demat reduces paperwork and administrative burden, thus cutting costs related to printing, handling, and storage of certificates. Additionally, stamp duty is not required for transfer of dematerialised shares, which also reduces expenses.

4. Convenient Portfolio Management

All holdings can be viewed and managed easily through a single demat account, regardless of the number of companies or securities owned. Investors can track their investments, dividend status, and corporate actions in real time with fewer complexities.

5. Mandatory Compliance for Private Companies

As per Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, all private companies must dematerialise their shares by June 30, 2025. This move promotes transparency, digital record-keeping, and better governance.

Advantages of ISIN (International Securities Identification Number)

The following are the advantages of ISIN:

1. Unique Global Identification of Securities

Each ISIN is a globally recognized code that uniquely identifies a specific security. It allows investors, regulators, and custodians to accurately distinguish between securities, even if they have similar names, across international markets.

2. Essential for Dematerialisation and Listing

Without an ISIN, a company cannot dematerialise its securities or list them on a recognized stock exchange. It is mandatory to obtain an ISIN for every class of security, such as equity shares, preference shares, or debentures.

3. Enables Smooth Cross-Border Transactions

ISIN simplifies trading of Indian securities in global markets by providing a standardized identification system. It enhances compatibility with international clearing houses and helps foreign investors easily identify Indian securities.

4. Improved Record-Keeping and Tracking

ISIN helps depositories, stock exchanges, and RTAs in efficiently maintaining and tracking securities. It ensures accurate records, reduces transaction errors, and enhances the transparency of securities ownership and movement.

5. Mandatory Compliance under Indian Law

As per SEBI and MCA requirements, ISIN is essential for companies to remain compliant with demat-related rules. It ensures companies are properly registered with depositories and allows regulators to monitor market activities more effectively.

Applicability of Rule 9A and Rule 9B on Companies

The Ministry of Corporate Affairs (MCA) has taken significant steps toward promoting digitisation and transparency in securities management. Two key provisions under the Companies (Prospectus and Allotment of Securities) Rules, 2014—Rule 9A and Rule 9B—play an essential role in the regulation of securities issuance and dematerialisation. While Rule 9A initially targeted unlisted public companies, the introduction of Rule 9B has extended certain requirements to private companies as well.

Rule 9A – Applicability to Unlisted Public Companies

Rule 9A, inserted via the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018, mandates that every unlisted public company must:

• Issue securities only in dematerialised form; and

• Facilitate dematerialisation of all existing securities.

Additionally, before making any offer—be it a fresh issue, rights issue, bonus, or buyback—the company must ensure that promoters, directors, and key managerial personnel (KMPs) hold their securities in electronic (demat) form. Rule 9A came into effect from October 2, 2018, and has been strictly enforced through regular MCA adjudication orders.

Rule 9B – Applicability to Private Companies

To bring private companies into the digital fold, Rule 9B was introduced via the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023. It mandates that every private company, excluding certain exemptions (like startups, small companies, wholly-owned subsidiaries, and Nidhis), must:

• Dematerialise all existing securities, and

• Ensure that future issuances are made only in dematerialised form.

The compliance deadline for private companies is June 30, 2025. After this date, no share transfer or new issue will be valid unless shares are held in demat form.

Form PAS-6: Reconciliation of Share Capital Audit Report

Form PAS-6 is a half-yearly return that must be filed by unlisted public companies as per Rule 9A(8) of the Companies (Prospectus and Allotment of Securities) Rules, 2014. Its primary purpose is to ensure that the securities issued by a company in dematerialised form are properly reconciled with the records maintained by the depositories, namely NSDL and CDSL. Introduced to improve transparency and accountability in the securities market, Form PAS-6 captures details such as the ISIN (International Securities Identification Number), number of shares held in dematerialised and physical form, and changes in share capital during the period. The form must be certified by a Practicing Chartered Accountant (CA), Company Secretary (CS), or Cost Accountant.

This return must be filed for each half of the financial year — that is:

• For April to September (due by 30th November)

• For October to March (due by 30th May)

Filing PAS-6 ensures that the dematerialisation of securities is consistent and no discrepancies exist between the issued capital and the capital held in demat form. Non-compliance with PAS-6 filing may lead to penalties under the Companies Act, 2013. It is important to note that private companies are exempt from filing PAS-6 unless they become unlisted public companies or fall under a special regulatory category. In conclusion, PAS-6 is an important compliance requirement that promotes better corporate governance and investor protection in unlisted public companies.

Applicability of Form PAS-6

Form PAS-6 is a regulatory compliance requirement introduced under Rule 9A of the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2019. It applies specifically to unlisted public companies that issue or hold shares. The purpose of this form is to reconcile the share capital held in demat and physical form with the records maintained by depositories such as NSDL and CDSL.

However, not all unlisted public companies are required to file Form PAS-6. The following categories are exempt from this obligation:

• Nidhi Companies: These are mutual benefit societies governed under a separate framework.

• Government Companies: Entities fully or majority owned by the Central or State Government.

• Wholly Owned Subsidiaries: Companies whose entire shareholding is owned by a single corporate body.

Rules on Issuance of Securities by Unlisted Public Companies

Under Rule 9A, every unlisted public company is mandated to issue all new securities only in dematerialised form. In addition to this, they are also required to convert all their existing physical securities into electronic (demat) form. This requirement ensures that all securities, whether newly issued or previously held, are brought under a secure and transparent electronic system regulated by the Depositories Act, 1996. The process must comply with the regulations issued by SEBI and the provisions laid out by depositories.

Dematerialisation Requirement for Directors and Key Stakeholders

Before an unlisted public company can proceed with any of the following corporate actions:

• Issuance of fresh securities,

• Buyback of shares,

• Bonus allotment, or

• Rights issue,

It must ensure that all shares held by its Directors, Promoters, and Key Managerial Personnel (KMP) have already been converted into dematerialised form. This pre-condition ensures transparency and uniformity in the ownership structure before the company proceeds with any corporate action.

Transfer and Subscription Rules Post 2nd October 2018

An important compliance date for unlisted public companies is 2nd October 2018. After this date:

• No transfer of securities is permitted unless the securities are first dematerialised.

• Anyone who subscribes to shares (through bonus, private placement, or rights issue) must ensure that their entire existing holding is in demat form before subscribing to any new allotment.

What Unlisted Public Companies Must Do

To comply with Rule 9A and facilitate dematerialisation, unlisted public companies are expected to:

Apply to a Recognised Depository

The company must register with either NSDL or CDSL (as defined under Section 2(1)(e) of the Depositories Act, 1996).

Obtain ISIN

For every distinct class of security issued (such as equity, preference shares, or debentures), the company must secure an International Securities Identification Number (ISIN).

Inform Shareholders

Companies must inform all existing shareholders about the availability and necessity of dematerialisation, offering them a pathway to convert their physical shares into electronic form.

Process of ISIN Generation 

The process of dematerialization of shares involves several important steps, especially the 1st step to generate ISIN as outlined below:

1. Appointment of Registrar & Transfer Agent (RTA)

The first step in the ISIN generation process is appointing a Registrar and Transfer Agent (RTA). The RTA manages the company’s share-related activities and acts as a link between the company, shareholders, and the depositories like NSDL or CDSL.

2. Submission of Required Documents to NSDL/CDSL

The company must submit an application to the chosen depository, along with key documents. These include the Master Creation Form, security details, board resolution, incorporation certificates, Articles of Association, net worth certificate, and tax registrations (PAN, GST, TAN). These documents support the request for ISIN generation and admission of share capital.

3. Signing of Tripartite Agreement

After document verification, the company must execute a tripartite agreement on ?600 stamp paper. This agreement is signed between the company, RTA, and NSDL/CDSL. It authorizes and facilitates smooth share dematerialization and ISIN allotment through mutual cooperation of all parties.

4. Providing Shareholders Access to Demat Facility

Once ISIN is allotted, the company can offer its shareholders the facility to dematerialize their physical shares. Shareholders can approach a Depository Participant (DP) to convert their physical certificates into electronic form using the generated ISIN.

Dematerialisation Process (Shareholder Level)

The following is the step-by-step process for Dematerialisation:

Surrender of Physical Share Certificates to DP

The shareholder submits original physical share certificates to a Depository Participant along with a Dematerialization Request Form (DRF).

DP Informs the Depository

The DP forwards the dematerialization request electronically to NSDL or CDSL and physically submits the share certificates to the RTA.

DP Submits Certificates to Registrar

The RTA (Registrar) receives the certificates from the DP for verification and record matching with the company’s register.

Registrar Confirms Request to Depository

Upon successful verification, the Registrar confirms the dematerialisation request to the depository for processing.

Dematerialisation by Registrar

The Registrar cancels the physical certificates and records the securities in demat form in the name of the investor.

Demat Account Updated by DP

Finally, the DP receives confirmation from the depository, and the investor’s demat account is updated with the credited electronic shares.

Penalty for Non-Compliance under Rule 9A and Rule 9B of the Companies Act, 2013

Rules 9A and 9B under the Companies (Prospectus and Allotment of Securities) Rules, 2014 mandate that unlisted public companies must issue and hold their securities only in dematerialised form. Additionally, private companies are required to dematerialise their securities by June 30, 2025, as per Rule 9B. Non-compliance with these provisions invites penalties under Section 450 of the Companies Act, 2013. According to Section 450, if a company fails to comply with any provisions for which no specific penalty is provided, it and every officer in default are liable to a penalty of Rs. 10,000. For continuing contraventions, an additional penalty of ?1,000 per day applies after the first day of default. The penalty is capped at Rs. 2,50,000 for the company and Rs. 50,000 for the officer in default or any other person involved.

The Ministry of Corporate Affairs (MCA) has also initiated adjudication proceedings for non-compliance with Rule 9A. A recent adjudication order issued in the case of M/s. Premier Energies Limited under Section 454, for violation of Section 29(1A) read with Rule 9A(2), confirms the imposition of penalties on the company and its officers. This clearly shows that MCA is actively monitoring compliance with demat-related rules and enforcing penalties where necessary. Companies must ensure timely dematerialisation of securities and filing of Form PAS-6 to avoid such regulatory action and financial penalties.

Post ISIN Compliance Requirements

After the successful generation of ISIN (International Securities Identification Number) and the completion of the dematerialisation process, a company must continue to meet certain ongoing compliance obligations to remain in line with SEBI and MCA regulations. These requirements ensure that the transition to electronic securities is effectively maintained and transparent for all stakeholders.

• As per Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014, every unlisted public company must issue all new securities only in dematerialised form. This applies to equity shares, debentures, bonus shares, rights issues, and private placements. Physical certificates for such issuances are no longer valid, and failure to adhere may attract penalties under the Companies Act, 2013.
• Companies must maintain continuous coordination with their Registrar and Transfer Agent (RTA). RTAs play a key role in handling corporate actions like dividend distribution, bonus issues, share transfers, and capital restructuring. Accurate and timely communication with the RTA ensures that all such actions are processed through depositories like NSDL or CDSL without any errors or delays.
• Companies are responsible for keeping shareholders informed about the dematerialisation process. This includes educating shareholders about how to open a demat account, submitting the Dematerialisation Request Form (DRF), and converting physical shares to electronic form.
• Companies must file Form PAS-6 on a half-yearly basis to reconcile share capital with depository records. Compliance with these post-ISIN requirements ensures legal adherence, builds shareholder confidence, and promotes better governance practices.

Key Considerations for Compliance

1. RTA Appointment is Optional

While most companies appoint a Registrar and Transfer Agent (RTA) to handle the technicalities of ISIN generation and demat processing, the law does not mandate this. Companies with strong in-house teams may handle these functions directly. However, engaging an experienced RTA simplifies coordination with depositories like CDSL or NSDL and ensures accurate record maintenance.

2. Stamp Duty on Physical Share Certificates

It is recommended that any pending stamp duty on existing physical share certificates be paid before initiating the dematerialisation process. This ensures that the shares are legally enforceable and are not questioned at the time of conversion or future corporate actions.

3. Freezing of ISIN (Optional Facility by Depositories)

To prevent unintended or unauthorized debit (transfer) of dematerialised shares, CDSL and NSDL offer an optional facility for private companies to keep their ISIN status as ‘Frozen for Debit’. This prevents outgoing transfers unless specific conditions are met and provides a layer of control to the company over its share movement.

Restrictions and Recommendations for Dematerialisation of Shares by Private Companies

As India moves toward a fully digital securities ecosystem, private companies are also being brought under the ambit of mandatory dematerialisation compliance through Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014. This rule, introduced by the Ministry of Corporate Affairs (MCA), mandates that all private companies convert their physical share certificates into electronic form by June 30, 2025. Failure to comply with this mandate restricts the company from undertaking any future securities-related activity and exposes it to legal penalties under the Companies Act, 2013.

Restrictions on Non-Dematerialised Shares

If a private company fails to dematerialise its shares before the prescribed compliance date, it cannot carry out key corporate actions. These include:

• Issuing fresh securities (private placements, bonus shares, rights issues)

• Buyback of shares

• Transfer of shares

• Any form of capital restructuring or reclassification involving shares

Before initiating any of the above actions, the company must ensure that all existing securities held by its promoters, directors, and key managerial personnel (KMPs) are fully dematerialised. This rule has been laid down to enhance transparency and prevent manipulation or misuse of physical shares.

Moreover, post-October 2, 2018, any shareholder intending to transfer or subscribe to shares of a private company must first dematerialise their existing physical shareholding. Without this, neither the transfer nor the new allotment will be legally valid or processable.

Why Choose CDSL for ISIN Allotment?

Central Depository Services (India) Limited (CDSL) offers a streamlined and simplified process for ISIN generation. Its key advantages include:

• Minimal documentation requirements

• Single-point coordination for admissions and support

• Faster turnaround time for approval

• Dedicated support team to address company-specific needs

• CDSL is known for its user-friendly interface and proactive assistance, making it an ideal choice for private companies initiating the demat process for the first time.

Why Choose Compliance Calendar LLP as Your Compliance Partner?

At Compliance Calendar LLP, we offer a complete suite of professional services tailored to assist private companies in successfully completing the ISIN generation and dematerialisation process. From documentation and liaison with depositories to finalising agreements with DPs and RTAs, we provide full-service support.

Our team of experienced professionals works closely with CDSL, Depository Participants (DPs), and RTAs to ensure that:

• All required forms and documents are correctly filed

• Stamp duty and legal formalities are duly completed

• Corporate actions are seamlessly processed post-dematerialisation

For any assistance, please feel free to reach out to us through mail at info@ccoffice.in or Call/Whatsapp at +91 9988424211.