India’s dematerialisation journey formally began with the enactment of the Depositories Act, 1996, which enabled electronic holding of securities. This legislation led to the establishment of the National Securities Depository Limited (NSDL) in 1996 and the Central Depository Services Limited (CDSL) in 1999. Under Section 9(1) of the Act, securities held by depositories are required to exist in dematerialised and fungible form.
Regulatory concerns around physical certificates were highlighted as early as 2004, when a SEBI-appointed group flagged risks such as bad delivery, theft, postal delays, high custodial costs, and infrastructure inefficiencies. These vulnerabilities strengthened the regulator’s resolve to phase out physical securities.
Under Indian law, shares are treated as “property” under the Transfer of Property Act, 1882, and as “goods” under the Sale of Goods Act, 1930, making them subject to general principles of property and contract law alongside company law requirements.
Over the years, dematerialisation requirements have expanded steadily. In 2014, the Ministry of Corporate Affairs (MCA) introduced the Companies (Prospectus and Allotment of Securities) Rules, extending dematerialisation obligations to unlisted public companies and requiring promoters to hold securities electronically.
This framework was strengthened in September 2018 with the introduction of Rule 9A, mandating unlisted public companies to issue securities only in dematerialised form and facilitate the conversion of existing physical holdings. Certain categories, including Nidhi companies, government companies, and wholly owned subsidiaries, were exempted.
In April 2019, SEBI amended the Listing Obligations and Disclosure Requirements (LODR) Regulations, prohibiting the transfer of securities held in physical form for listed entities. The scope was further widened in 2023, when Rule 9B under the Companies PAS Rules extended dematerialisation requirements to private companies, barring transfers of physical securities and imposing obligations on promoters, directors, and shareholders.
Despite these measures, a significant number of investors continue to hold physical share certificates acquired decades ago or inherited from earlier generations. After SEBI barred physical share transfers from April 1, 2019, transfers became permissible only in dematerialised form.
However, many investors were left stranded after transfer deeds executed before the deadline were rejected due to procedural errors, missing documents, or the death of transferors. As a result, valid ownership claims remained unresolved for years, effectively locking investors out of their own assets.
SEBI’s preference for full dematerialisation stems from multiple structural concerns. Physical certificates are vulnerable to loss, theft, forgery, and damage, while manual processing leads to delays and higher costs. Paper-based systems also enable fraudulent transfers, complicate regulatory oversight, and contribute to large volumes of unclaimed or disputed securities.
Dematerialisation, by contrast, offers a centralised, tamper-proof ownership record, faster settlements, improved transparency, and more effective regulatory supervision.
The 2026 Special Window
In a circular dated January 30, 2026, SEBI announced a one-time special window for the transfer and dematerialisation of physical securities acquired before April 1, 2019. The window will remain open from February 5, 2026, to February 4, 2027, and is part of SEBI’s broader “Ease of Doing Investment” initiative.
The decision builds on an earlier circular issued in July 2025, which allowed a six-month re-lodgement window for transfer deeds that had previously been rejected, returned, or left unattended due to procedural defects. Disputed cases and securities already transferred to the Investor Education and Protection Fund (IEPF) remain excluded.
According to SEBI, the 2026 window is intended to provide relief to investors and allow them to regularise ownership of their holdings without prolonged legal processes, while maintaining legal certainty.
While universal dematerialisation promises long-term efficiency, challenges remain. India’s vast corporate base raises concerns about infrastructure readiness, while enhanced KYC requirements may burden first-time and non-resident investors. Cases involving deceased holders, missing certificates, and joint ownership continue to complicate implementation. Emotional attachment to physical certificates has also slowed adoption in some segments.
Regulators, however, view these as transitional challenges in a larger institutional reform.
Completing the Transition
The 2026 special window functions as both a corrective and forward-looking measure, addressing historical inequities while reinforcing digital compliance. If implemented effectively, it could mark the final step in India’s shift from a paper-based legacy system to a transparent, secure, and globally competitive capital market.
