Digitalisation of Shares in India: Why It Matters and How the Process Works

In the evolving corporate landscape of India, one of the most significant reforms in recent years has been the digitalisation of shares—more commonly referred to as dematerialisation. Moving away from physical share certificates to electronic records is not merely a matter of convenience; it is a reform rooted in law, aimed at transparency, investor protection, and smoother corporate governance.

When Did Digitalisation Begin?

The journey began in the mid-1990s with the enactment of the Depositories Act, 1996, which laid the foundation for holding and transferring securities in electronic form. Soon after, India’s first depository, NSDL, became operational in 1996, followed by CDSL in 1999. This shift marked the beginning of paperless shareholding in India’s capital markets.

Later, the Companies Act, 2013 (Section 29) and related rules strengthened the requirement, making dematerialisation mandatory for certain classes of companies. Over time, the Ministry of Corporate Affairs (MCA) has widened its scope—first by mandating it for unlisted public companies (Rule 9A of the PAS Rules, 2014), and more recently, through Rule 9B (inserted in 2023), extending the requirement to many private companies as well.

The MCA has issued multiple clarifications and extensions, with the current compliance deadline for many private companies set at 30 June 2025.

Why Was It Made Mandatory?

Paper share certificates, though once considered a symbol of ownership, carried significant risks such as loss, theft, forgery, and mutilation. Their transfer involved cumbersome paperwork, delays, and the payment of stamp duties, while tracking ownership and reconciling share capital created additional complexity for companies and regulators. Dematerialisation addresses all these challenges by ensuring transparency, efficiency, and safety in shareholding. It also enables regulators like SEBI, the Ministry of Corporate Affairs (MCA), and the Registrar of Companies (ROC) to maintain cleaner, more accurate records, thereby reducing the chances of fraud or malpractice. In essence, the mandate reflects a broader vision of modern corporate governance, bringing Indian companies in line with global best practices.

Benefits to Shareholders

For investors and shareholders, the advantages are compelling:

• Security: No risk of misplacing paper certificates.
• Convenience: Shares can be transferred or pledged electronically, without physical movement.
• Faster corporate actions: Bonus issues, rights issues, dividends, and buybacks are credited directly to the demat account.
• Consolidated tracking: Shareholders get a clear, up-to-date statement of their holdings.

What once took weeks with paperwork can now be done in a few clicks through a Depository Participant (DP).

How Does the Process Work?

Digitalising shares is a joint effort between the company and its shareholders.

For the Company:

1. Board Approval – The company must approve dematerialisation and, if necessary, amend its Articles of Association.
2. Appoint a Registrar and Transfer Agent (RTA) – An RTA handles the back-end process and coordinates with depositories.
3. Obtain ISIN – Every class of share gets a unique International Securities Identification Number (ISIN) through NSDL or CDSL.
4. Enter into Agreements – The company, via its RTA, signs up with a depository.
5. Notify Shareholders – Shareholders are informed of the process and guided on how to surrender physical certificates.
6. File PAS-6 – Half-yearly reconciliation of share capital must be filed with the ROC to ensure records match between physical and demat holdings.

For Shareholders:

1. Open a Demat Account with a DP if they don’t already have one.
2. Surrender Physical Certificates to the company’s RTA along with a Demat Request Form.
3. Receive Electronic Credit in their demat account once verification is complete.

The Ministry of Corporate Affairs (MCA) drives policy through rules and notifications. The Registrar of Companies (ROC) ensures compliance by requiring filings like PAS-6 and monitoring companies’ adherence to demat requirements.

The MCA’s 2023 notification (Rule 9B) was a turning point, as it extended dematerialisation obligations to many private companies that had long operated with physical shares. With the extended compliance date of 30 June 2025, the clock is ticking for companies yet to begin the process.

A Step Towards Better Corporate Governance

The digitalisation of shares is more than a regulatory obligation—it is an essential part of India’s march towards ease of doing business, transparency, and investor protection. For companies, it reduces administrative burdens and enhances credibility. For shareholders, it provides convenience, safety, and seamless participation in corporate actions.

In many ways, it is a bridge from India’s traditional corporate practices to a digitally integrated future, where governance, compliance, and investor trust go hand in hand.