On 3 June 2025, the National Securities Depository Limited ("NSDL"), issued Circular No.NSDL/POLICY/2025/0071, outlining updated compliance requirements for the off-market transfer of shares of private companies in dematerialised form.
Pre Circular Scenario
In order to effectuate an off-market transfer of shares of a private company, the shareholder was required to submit a Delivery Instruction Slip ("DIS") to the depository participant ("DP"), following which the transfer of shares could be executed.
Post Circular Scenario
Now, in addition to the submission of the DIS to the DP, the relevant shareholder intending to transfer the shares shall also be required to obtain a prior consent/ confirmation letter from the company whose shares are intended to be transferred and submit the same to the DP. The company should give the said consent in the format prescribed in the Circular.
Comparison: Pre & Post Circular
| Aspect | Pre-Circular | Post-Circular |
|---|---|---|
| Documents Required | Only DIS to be submitted to DP | DIS + consent/ confirmation letter from the company |
| Company's Role | Passive as it could only trace transfers via BENPOS | Active, must accord it's consent prior to transfer |
Rationale for this new compliance
Pursuant to Section 58(1) & (2) of the Companies Act, 2013 private companies are permitted to impose restrictions on the transfer of shares through their Articles of Association. However, in practice, enforcing such restrictions on shares held in dematerialised form poses challenges, as companies typically become aware of such transfers only upon reviewing the BENPOSstatement after the share transfer is completed.
This revised compliance framework seeks to harmonise the depository mechanism with statutory restrictions prescribed under the Act by requiring prior consent from the company before the execution of demat-based share transfers.
Ambiguities and Practical Challenges
- The Circular does not specify a definitive timeline for companies to issue approval in response to the consent sought. This absence of a prescribed time frame may lead to uncertainty and potential delays, particularly in time-sensitive transactions.
Our Recommendation: Parties should consider stipulating a defined maximum timeline for obtaining consents within the transaction documents. Any breach or contravention of this timeline may trigger consequences for the company or necessitate the inclusion of alternative mechanisms to mitigate such potential delays.
- Lack of Uniformity Across Depositories
Presently, this new compliance requirement applies only to NSDL. The Central Depository Services (India) Limited ("CDSL") has not introduced a corresponding mandate. This imbalance may prompt parties to prefer transactions throughCDSL to circumvent the additional procedural requirement, potentially resulting in an inconsistent regulatory landscape between the two depositories.
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