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Rule 9B in Action: Practical Enforcement of Dematerialisation Requirements in Private Companies

Summary: This article examines a recent adjudication order passed by the Registrar of Companies, Bangalore against a private company for effecting a transfer of shares without prior dematerialisation i.e., in contravention of Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014. It analyses the governing framework under Rules 9A and 9B, the factual circumstances of the non-compliance, and the penalty imposed under Section 450 of the Companies Act, 2013. The article highlights key observations from the order, including the regulator’s silence on the validity of the impugned transfer and the limited scope of adjudication, and considers the broader implications of the same.

Background

India’s dematerialisation framework has evolved gradually over time, transitioning from a voluntary mechanism to a mandatory compliance obligation. In our earlier blog “Enforcing Progressive Compliance: Push for Digitalisation by Dematerialising Shares of All Companies” (November 28, 2023), we traced how the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 (“PAS 2023-Amendment”), introduced Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014 (“PAS Rules”), extending mandatory dematerialisation requirements to private companies (other than small companies and government companies). We also examined the practical challenges this transition posed for stakeholders. In this article, we analyze a recent adjudication order passed by the Registrar of Companies (“ROC”), Bangalore, which offers a practical illustration of the consequences and costs of non-compliance with these mandatory dematerialisation requirements.

Governing Framework and ROC Order

Rule 9B(1)(b) read with Rule 9B(2) of the PAS Rules, requires every private company (other than small companies and government companies) to facilitate the dematerialisation of all its existing securities within the following prescribed timelines (“Compliance Deadline”):

  • for a private company that, as on the last day of a financial year ending on or after March 31, 2023, is not a small company as per its audited financial statements for such financial year, within 18 (eighteen) months of closure of such financial year; or
  • for a private company (other than a “producer company”) that is not a small company as on March 31, 2023, on or before June 30, 2025.[1]

Separately, Rule 9B(4)(a) of the PAS Rules provides that any holder of securities who intends to transfer such securities after the Compliance Deadline must first ensure that the securities are dematerialised before undertaking the transfer.[2].

The ROC, Bangalore, passed an adjudication order on August 19, 2026 (“ROC Order”), against Fyle Technologies Private Limited (“Company”), for non-compliance with Rule 9B(4)(a) of the PAS Rules. The ROC took note that the Company, which did not qualify as a small company as on March 31, 2023, was required to ensure compliance with Rule 9B(1)(b) and Rule 9B(4)(a) of the PAS Rules by June 30, 2025. Notwithstanding this, the board of directors of the Company (“Board”) approved the transfer of shares on July 24, 2025, without first ensuring that the securities of the transferor were dematerialised prior to the transfer.

The Company then filed a suo motu adjudication application and opted for no hearing. Consequently, the ROC Order was issued on the basis of the application, the notice for adjudication, and the replies received from the Company. The ROC Order imposed a residuary penalty on the Company and its officers in default under Section 450 of the Companies Act, 2013 (“Act”), for contravention of Rule 9B(4)(a) of the PAS Rules.

Impact and Analysis

The ROC shows that the regulators are taking cognizance of cases where transfers are effected while securities are in physical form even after the Compliance Deadline, demonstrating active monitoring of compliance. However, we also note that the ROC did not declare the Board-approved transfer retrospectively invalid. Instead, the Company was directed to complete the dematerialisation of the securities in question and submit proof of compliance through e-Form GNL-1 within 30 (thirty) days from the date of the ROC Order.

It is equally noteworthy that the Company had obtained its International Securities Identification Number (“ISIN”) for its equity shares only on July 8, 2025, i.e., after the Compliance Deadline. Given that obtaining an ISIN is a practical prerequisite to facilitating dematerialisation,[3] the ROC did not specifically call out this delay or hold the Company liable for contravention under Rule 9B(1)(b) of the PAS Rules. Thus, the ROC Order was confined solely to the contravention of Rule 9B(4)(a) of the PAS Rules.

As for the penalties, under Section 450 of the Act, the ROC can impose a penalty of INR 10,000 (Indian Rupees Ten Thousand) on a company and every officer in default, together with an additional penalty of INR 1,000 (Indian Rupees One Thousand) per day of continuing contravention, up to a maximum of INR 2,00,000 (Indian Rupees Two Lakh) for the company and INR 50,000 (Indian Rupees Fifty Thousand) for each officer in default. Despite these limits, the ROC Order imposed only the minimum statutory penalty of INR 10,000 (Indian Rupees Ten Thousand) on the Company and INR 10,000 (Indian Rupees Ten Thousand) on each of the four officers in default, without any additional per-day penalty. The ROC’s lenient approach appears to have been influenced by the Company’s submissions that the contravention was without any mala fide intention to secure any undue advantage, and that the non-compliance did not result in any gain to the Company or any loss to any stakeholder. 

Conclusion

The ROC Order has not opined on the validity of the transfer effected in contravention of Rule 9B(4)(a) of the PAS Rules and has limited its directions to the Company to completion of the dematerialisation process. Additionally, with respect to the contravention of Rule 9B(1)(b) of the PAS Rules (which is distinct from the contravention of Rule 9B(4)(a) of the PAS Rules), the ROC has not pursued this as a separate default. Lastly, the imposition of minimum statutory penalty, without any additional per-day penalty, suggests that ROCs are likely to consider the bona fide actions a defaulting company takes towards rectification, including initiating steps for dematerialisation and filing suo motu adjudication application.

For private companies that are yet to fully operationalize dematerialisation, the ROC Order serves as a reminder that delays in compliance and non-compliant transfers may carry regulatory consequences, and that proactive steps towards rectification may be taken into consideration during adjudication proceedings.

[1] 9B(1)(b) read with Rule 9B(2) of the PAS Rules.

[2] 9B(4)(a) of the PAS Rules.

[3] Rule 9B(1)(b) of the PAS Rules.