Demystifying RTAs: The backbone of India's share dematerialisation mandate for 2025

Overview : The digital transformation of India's private company securities is in full swing, with the mandatory dematerialisation deadline of June 30, 2025, approaching. Registrar and Transfer Agents (RTAs) are at the heart of this transformation and serve as critical intermediaries in converting physical share certificates into electronic form. This comprehensive guide explains everything private companies need to know about RTAs and the dematerialisation process under Rule 9B.

Private company dematerialisation

All private companies in India (except small companies) must convert their physical securities to electronic form by June 30, 2025, and appoint a SEBI-registered RTA to facilitate this process. This regulatory shift aims to enhance transparency, reduce fraud, and streamline share transfers. Companies failing to comply face penalties of up to ₹2,00,000 and restrictions on issuing new securities or executing transfers. The process involves appointing an RTA, executing a tripartite agreement with a depository, obtaining ISINs, and facilitating the conversion of physical certificates to electronic forms.

What is an RTA, and why are they essential?

A Registrar and Transfer Agent (RTA) is a specialised financial intermediary registered with the Securities and Exchange Board of India (SEBI) that acts as a critical link between securities issuers and investors. RTAs maintain records of securities ownership, facilitate transfers, and provide administrative services essential to the functioning of securities markets. RTAs operate under two primary categories as defined by SEBI:

• Category I : Authorised to act as both registrar and share transfer agent
• Category II : Authorised to act as either registrar or share transfer agent

The core functions of RTA include:

• Share registry management : RTAs maintain up-to-date records of shareholders and their holdings, process ownership transfers, and handle the conversion between physical and electronic securities. This central recordkeepingfunction is essential for corporate governance and regulatory compliance.
• Corporate actions processing : From dividend payments to bonus issues, rights offerings, and buybacks, RTAs manage the complex execution of corporate actions. They ensure that each shareholder receives their entitled benefits and that all regulatory requirements are met during these processes.
• Investor services : RTAs serve as the primary point of contact for shareholders, providing account statements, processing redemptions, handling KYC verification, and addressing investor grievances. This creates a smooth interface between companies and their investors.
• Compliance and reporting : RTAs ensure regulatory compliance with SEBI requirements, submit periodic reports to authorities, implement anti-money laundering checks, and maintain records for statutory periods. Their role in regulatory adherence is particularly crucial during the dematerialisation process.

Rule 9B: Legal framework for RTAs in the dematerialisation process

On October 27, 2023, the Ministry of Corporate Affairs introduced Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, mandating that all private companies—except small companies with paid-up capital under ₹4 crore and turnover below ₹40 crore, and government companies—must issue securities only in dematerialised form and facilitate dematerialisation of all existing securities.

The compliance deadline has been extended to June 30, 2025, giving companies additional time to complete this transition. The rule further stipulates that before any offer for securities issuance, buyback, or rights offer, companies must ensure that all securities held by promoters, directors, and key managerial personnel are in dematerialised form. Additionally, any security holder planning to transfer securities must first dematerialise them, and anyone intending to subscribe to securities must ensure all their existing securities are already dematerialised.

Legal Requirements for Appointing RTAs Under Rule 9B

Private companies undergoing dematerialisation must satisfy several crucial legal requirements when appointing a Registrar and Transfer Agent (RTA). These requirements ensure regulatory compliance and establish the necessary framework for the seamless conversion of physical securities to electronic forms. The following key provisions must be fulfilled:

• RTA Registration: The appointed RTA must be registered with SEBI under the SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993.
• Board Resolution: Companies must pass a formal board resolution appointing the RTA and authorising the dematerialisation process.
• Tripartite Agreement: A formal tripartite agreement must be executed between the private company , the appointed RTA and the chosen depository (either NSDL or CDSL)
• Fee Payment: Companies must timely pay the RTA all required fees (both admission and annual) in accordance with the service agreement.
• Security Deposit: Companies must maintain a security deposit with the RTA amounting to at least two years' worth of fees.

Penalties for Non-Compliance with Rule 9B

Companies failing to comply with Rule 9B face significant consequences that can impact both their financial standing and operational capabilities. Monetary penalties include fines of ₹10,000 plus daily penalties of ₹1,000 for each day the violation continues, up to a maximum of ₹2,00,000 for the company itself. Officers in default face similar penalties, though capped at a lower maximum of ₹50,000. Beyond financial implications, non-compliant companies face severe operational restrictions that effectively paralyse their securities-related activities. These companies cannot issue or allot new securities (including bonus shares), are prohibited from conducting share buybacks, and their security holders cannot transfer existing securities or subscribe to new issues without first completing the dematerialisation process

Penalty Structure for Rule 9B Non-Compliance

How RTA Helps in Following Ways in Dematerialisation

• Articles of Association Amendment: RTAs guide companies through modifying their Articles of Association to explicitly authorise dematerialisation, providing templates and documentation advice to ensure legal compliance with regulatory requirements.
• RTA Appointment: Companies select a SEBI-registered RTA via board resolution and execute a comprehensive service agreement. RTAs help draft these documents and outline clear roles and responsibilities.
• Tripartite Agreement: RTAs prepare and coordinate the critical three-way agreement between the company, depository, and themselves. This legally binding document establishes protocols for information exchange and security management.
• ISIN Acquisition: RTAs manage the International Securities Identification Numbers (ISIN) application process for each security type, handling documentation and regulatory correspondence during the typical 15-30 day processing period.
• Shareholder Communication
  RTAs develop comprehensive notification materials explaining the dematerialisation process to shareholders, including timelines, requirements, and benefits. They also establish channels for addressing stakeholder queries.
• Demat Account Setup
  RTAs provide instructions for companies and shareholders to establish Demat accounts with Depository Participants, offering guidance through documentation requirements and verification procedures.
• Physical Certificate Verification
  RTAs authenticate physical certificates submitted with Dematerialization Request Forms against company records, performing crucial verification during a 7-15 day period to prevent fraud and errors.
• Electronic Conversion
  Following successful verification, RTAs authorise the cancellation of physical certificates and coordinate electronic credit to shareholder Demat accounts, typically completing this transfer within 15-30 days.
• Record Maintenance
  RTAs establish electronic record-keeping systems for all securities, performing regular reconciliation between issued capital and dematerialized holdings to ensure data integrity and ownership clarity.
• Regulatory Reporting
  RTAs help prepare and submit mandatory Form PAS-6 filings to the Registrar of Companies biannually, ensuring accurate reporting of dematerialised securities and maintaining regulatory compliance.
• Ongoing Corporate Actions
  RTAs manage corporate actions like dividend distributions, bonus issues, and stock splits in the electronic environment, ensuring these benefits properly reach all dematerialised security holders.

Conclusion

Mandatory dematisation of securities for private companies represents a significant modernisation of India's corporate landscape. While the June 30, 2025, deadline provides ample time for compliance, companies should start the process early to avoid last-minute complications. Registrar and Transfer Agents are indispensable partners in this transition, offering the expertise, infrastructure, and regulatory knowledge needed to navigate the complex dematerialisation journey successfully.

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Setindiabiz Editorial Team is a multidisciplinary collective of Chartered Accountants, Company Secretaries, and Advocates offering authoritative insights on India’s regulatory and business landscape. With decades of experience in compliance, taxation, and advisory, they empower entrepreneurs and enterprises to make informed decisions.