India’s corporate landscape is undergoing a profound transformation, driven by technological advancements and robust regulatory reforms. Central to this evolution is the dematerialisation of securities, a process that converts physical share certificates into electronic records stored in demat accounts.
This shift has streamlined shareholding processes and significantly influenced mergers and acquisitions (M&A) transactions in India, making them faster, more secure, and transparent. As of April 2025, with private companies mandated to dematerialise their securities by June 30, 2025, understanding this process is crucial for stakeholders navigating India’s dynamic M&A market.
Understanding Dematerialisation of Securities
Dematerialisation, commonly referred to as demat, is the process of converting physical securities—such as share certificates, bonds, or mutual fund units—into electronic records held in a demat account. In India, this process is facilitated by two depositories regulated by the Securities and Exchange Board of India (SEBI): the National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).
Formalised under the Depositories Act, 1996, dematerialisation has revolutionised India’s financial markets by mitigating risks associated with physical certificates, such as loss, theft, or forgery. Since its inception, the adoption of demat accounts has grown exponentially, with millions of investors now managing their portfolios digitally, reflecting India’s broader push towards a paperless economy. This process not only enhances security but also simplifies trading and share management, making it a cornerstone of modern corporate practices in India.
The procedure for dematerialisation is methodical and designed for accessibility, though it requires careful execution to ensure accuracy. An investor begins by opening a demat account with a Depository Participant (DP), which could be a bank, brokerage firm, or financial institution registered with NSDL or CDSL. Once the account is established, the investor submits a Dematerialisation Request Form (DRF) along with their physical share certificates, which must be defaced with the notation “Surrendered for Dematerialisation” to prevent misuse.
The DP verifies the authenticity of these documents and forwards them to the company’s registrar and transfer agent (RTA), who confirms the share details with the issuing company. Upon successful verification, the depository credits the equivalent number of electronic shares to the investor’s demat account, typically within 15 to 30 days. This streamlined process eliminates the need for physical handling, reducing administrative burdens and enhancing transaction efficiency, which is particularly beneficial for high-volume corporate activities like M&A.
Dematerialisation offers a range of advantages that have made it indispensable in India’s securities market. It provides unparalleled convenience, allowing investors to manage their portfolios remotely through secure digital platforms, eliminating the need for physical storage or manual transfers. Security is significantly enhanced, as electronic records are safeguarded against loss, theft, or forgery, issues that plagued physical certificates. Cost efficiency is another key benefit, as electronic share transfers incur no stamp duty, unlike physical transfers, thereby reducing transaction costs.
The speed of electronic transfers also accelerates corporate actions, such as share allotments or transfers, which is critical in time-sensitive M&A deals. Additionally, dematerialisation is eco-friendly, reducing reliance on paper and aligning with sustainable practices. However, there are some challenges to consider.
Technical risks, such as system outages or cyber threats, though rare due to the robust infrastructure of NSDL and CDSL, remain a concern. Initial costs for opening and maintaining a demat account may deter some investors, particularly those with smaller portfolios. Furthermore, less tech-savvy investors may face a learning curve when transitioning to digital platforms, though educational initiatives by depositories are helping bridge this gap.
Mandatory Dematerialisation for Private Companies in India
The Ministry of Corporate Affairs (MCA) has progressively expanded the scope of dematerialisation to enhance transparency and efficiency across India’s corporate sector. For unlisted public companies, the mandate to issue securities exclusively in dematerialised form has been in effect since September 10, 2018, under Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
This requirement ensures that all securities issued by unlisted public companies are held electronically, facilitating seamless share management and reducing administrative complexities. By mandating dematerialisation, the MCA has aligned unlisted public companies with listed companies, which have long operated under similar SEBI regulations, thereby standardising practices across the corporate spectrum.
A landmark regulatory update came in October 2023 with the introduction of Rule 9B through the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023. This rule mandates that private companies, excluding small companies, government companies, and producer companies, must dematerialise all their existing securities by June 30, 2025.
Initially set for September 30, 2024, the deadline was extended following stakeholder concerns about implementation challenges, such as delays in obtaining International Securities Identification Numbers (ISINs) and coordinating with shareholders.
Under the Companies Act, 2013, a small company is defined as one with a paid-up capital not exceeding ₹4 crore or a turnover not exceeding ₹40 crore, based on its audited financial statements as of March 31, 2023. This mandate aims to bring private companies in line with public companies, enhancing transparency in shareholding and reducing risks associated with physical certificates.
Compliance with Rule 9B is critical for private companies, as non-compliance may result in penalties under the Companies Act, 2013, potentially affecting their ability to undertake corporate actions like buybacks, rights issues, or M&A transactions. Companies must obtain an ISIN for each type of security and ensure that promoters, directors, and key managerial personnel hold their securities in dematerialised form before engaging in specified corporate actions.
The MCA’s extension of the deadline to June 30, 2025, reflects a pragmatic approach, acknowledging challenges such as high compliance costs, regulatory burdens for certain companies (e.g., Section 8 companies or wholly owned subsidiaries), and operational issues for foreign shareholders without valid PAN cards. To support compliance, depositories and DPs are offering guidance, and companies are encouraged to initiate the dematerialisation process early to avoid last-minute hurdles.
Impact of Dematerialisation on M&A Transactions in India
Dematerialisation has fundamentally reshaped the landscape of M&A transactions in India, offering significant advantages in efficiency, transparency, and risk mitigation. In M&A deals, the transfer of shares is a core activity, often involving large volumes of securities. Dematerialised securities enable near-instantaneous electronic transfers, eliminating the delays and complexities associated with physical certificate transfers, which can take weeks and are susceptible to loss or forgery.
Since April 1, 2019, SEBI has prohibited listed companies from accepting physical share transfers, ensuring that M&A deals involving listed entities rely exclusively on dematerialised shares. This regulatory shift has streamlined share transfers, making them a seamless component of M&A processes.
A critical benefit of dematerialisation is the reduction in disputes over share ownership. Physical certificates are vulnerable to loss, theft, or tampering, which can lead to legal challenges during M&A negotiations. Electronic records maintained by NSDL and CDSL provide a secure, verifiable trail of ownership, minimising the risk of disputes and enhancing trust among parties. This clarity is particularly valuable in high-stakes M&A deals, where disputes can derail negotiations or delay closings.
Furthermore, dematerialisation enhances the due diligence process, a cornerstone of M&A transactions. Verifying share ownership and encumbrances is a time-consuming task with physical certificates, but dematerialised securities offer real-time, transparent records, enabling faster and more accurate due diligence. This efficiency can significantly accelerate deal timelines, allowing companies to capitalise on market opportunities.
Regulatory compliance is another area where dematerialisation plays a pivotal role in M&A. For listed companies, compliance with SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015, which mandate dematerialised share transfers, ensures that M&A deals meet regulatory standards.
For private companies, the impending June 30, 2025, deadline for dematerialisation under Rule 9B will align them with these standards, reducing regulatory hurdles in M&A transactions. Non-compliance could result in delays or rejections of regulatory approvals, making dematerialisation a prerequisite for smooth deal execution. The MCA’s proactive approach, including the deadline extension, underscores the importance of dematerialisation in maintaining a compliant and efficient corporate ecosystem.
Recent M&A transactions illustrate the practical benefits of dematerialisation. The 2024 merger between Walt Disney and Reliance Industries, a multi-billion-dollar deal consolidating media assets, relied heavily on dematerialised shares to ensure swift and transparent ownership transfers.
Similarly, the 2022 acquisition of Viatris Inc.’s biosimilars business by Biocon Biologics Limited, the largest outbound acquisition by an Indian company in the US healthcare sector, demonstrated how dematerialisation simplifies cross-border M&A by eliminating the need for physical share certificates. These examples highlight how dematerialisation supports India’s growing M&A market, which saw a 66% surge in deal values in the first nine months of 2024 compared to 2023.
Regulatory Framework for M&A in India
The regulatory framework governing M&A in India is robust, designed to ensure transparency, fairness, and compliance across domestic and cross-border transactions. The Companies Act, 2013, serves as the primary legislation, with Sections 230 to 233 providing detailed provisions for mergers, amalgamations, and corporate restructuring.
These sections outline the process for obtaining approvals from the National Company Law Tribunal (NCLT), ensuring that the interests of shareholders, creditors, and other stakeholders are protected. The Act also facilitates the integration of dematerialised securities by requiring companies to maintain accurate and transparent shareholding records, which is critical for M&A execution.
For listed companies, SEBI plays a central role through regulations such as the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, which mandate timely disclosures and compliance with dematerialisation requirements. SEBI’s oversight ensures that M&A deals involving listed entities adhere to high standards of transparency and investor protection.
The Competition Act, 2002, administered by the Competition Commission of India (CCI), is another key legislation, ensuring that M&A transactions do not create anti-competitive market conditions. Companies must seek CCI approval for deals exceeding specified financial thresholds, a process that benefits from the clarity provided by dematerialised share records.
Cross-border M&A transactions are governed by the Foreign Exchange Management Act (FEMA), 1999, administered by the Reserve Bank of India (RBI). FEMA regulates foreign exchange inflows and outflows, ensuring compliance “with India’s foreign exchange policies. Dematerialised securities simplify compliance with FEMA by providing clear ownership records, which are essential for regulatory reporting in cross-border deals.
The MCA has further streamlined M&A processes through fast-track merger provisions under Section 233 of the Companies Act, 2013, introduced to expedite mergers for holding companies, wholly owned subsidiaries, small companies, and startups. These provisions, amended in 2023, reduce approval timelines and complement the efficiency gains from dematerialisation.
The interplay of these regulations creates a cohesive framework that supports M&A activity while ensuring compliance with dematerialisation mandates. For instance, the requirement for listed companies to maintain dematerialised shares aligns with SEBI’s disclosure obligations, while the MCA’s Rule 9B extends similar standards to private companies, ensuring a unified approach to shareholding transparency. This regulatory synergy enhances the efficiency of M&A transactions, positioning India as a competitive destination for global dealmaking.
Case Studies: M&A Transactions with Dematerialised Securities
India’s M&A market has experienced a remarkable resurgence in 2024, with dematerialisation playing a critical role in facilitating high-value transactions. One of the most prominent deals was the merger between Walt Disney and Reliance Industries, announced in 2024 and valued at billions of dollars. This landmark transaction in the media sector involved consolidating significant assets, and the use of dematerialised shares ensured that ownership transfers were executed swiftly and transparently.
By leveraging electronic share records, the companies minimised administrative delays and focused on strategic integration. The deal underscores how dematerialisation supports complex, high-stakes M&A transactions in India’s rapidly growing economy.
Another significant transaction was the acquisition of Viatris Inc.’s biosimilars business by Biocon Biologics Limited in 2022, which remains a benchmark for cross-border M&A. Valued as the largest outbound acquisition by an Indian company in the US healthcare sector, this deal demonstrated the advantages of dematerialisation in simplifying international share transfers.
Electronic share records eliminated the need for physical certificate handling, reducing the risk of errors and accelerating the due diligence process. The success of this transaction highlights how dematerialisation enables Indian companies to compete globally by streamlining complex deal structures.
In the industrial and infrastructure sectors, the Adani group’s acquisitions of ACC and Ambuja Cements in 2022, followed by continued M&A activity in 2024, further illustrate the role of dematerialisation. The group’s deals in Q2 2024, collectively valued at $3.2 billion, were driven by strategic acquisitions in industrial materials and ports.
Dematerialised shares facilitated rapid share transfers, enabling the Adani group to consolidate its market position efficiently. These case studies reflect the broader trend of India’s M&A market, which saw a 66% surge in deal values in the first nine months of 2024, driven by high-value transactions.
Looking ahead to 2025, the M&A market is expected to remain robust, with private equity (PE)-backed companies entering the market due to pressure from limited partners to exit older investments, as per PwC’s Global M&A Trends 2025. Dematerialisation will continue to be a critical enabler, ensuring that these transactions are executed with speed and transparency, further solidifying India’s position as a global M&A hub.
Dematerialisation and Rematerialisation of Securities
While dematerialisation converts physical shares into electronic form, rematerialisation allows investors to convert electronic shares back into physical certificates. However, rematerialisation is exceedingly rare in India due to the overwhelming advantages of electronic shareholding. Dematerialised shares offer superior security, convenience, and efficiency, making physical certificates largely obsolete.
The rematerialisation process involves submitting a request through the Depository Participant (DP) to the depository, which then coordinates with the issuing company to issue physical certificates. This process is subject to specific conditions, such as the availability of physical certificate issuance for the security in question and may incur administrative costs and delays.
The preference for dematerialised shares is driven by both market practices and regulatory mandates. For instance, SEBI’s prohibition on physical share transfers for listed companies since April 2019 has rendered rematerialisation impractical for most investors. Similarly, the MCA’s mandates for unlisted public and private companies to adopt dematerialisation further discourage the use of physical certificates.
Investors considering rematerialisation must weigh the costs, delays, and reduced functionality against the benefits of electronic holding, which include real-time transaction capabilities and integration with digital trading platforms. As India’s corporate sector continues to embrace digitalisation, rematerialisation is likely to remain a niche option, reserved for exceptional circumstances.
Future Trends and Developments
The future of dematerialisation in India’s securities market is poised for significant advancements, driven by technological innovation and regulatory evolution. One of the most promising developments is the potential integration of blockchain technology into shareholding management.
Blockchain’s ability to provide immutable, transparent, and decentralised records could further enhance the security and efficiency of dematerialised securities, reducing the risk of fraud and errors. By adopting blockchain, depositories like NSDL and CDSL could offer even greater assurance of share record integrity, which would be particularly valuable in complex M&A transactions involving multiple parties and jurisdictions.
Artificial intelligence (AI) and machine learning are also set to transform dematerialisation processes. AI-powered systems could automate various aspects of demat account management, from account opening to transaction processing, making the system more user-friendly and efficient. For instance, AI could streamline the verification process for dematerialisation requests, reducing turnaround times and enhancing investor experience. Such innovations would encourage broader adoption of demat accounts, particularly among retail investors and smaller companies, aligning with India’s digital economy goals.
Regulatory bodies like SEBI and MCA are likely to continue refining the dematerialisation framework to support India’s growing M&A market. Potential future mandates could extend dematerialisation requirements to small companies or other currently exempted categories, further standardising shareholding practices.
Additionally, incentives such as tax benefits or reduced compliance burdens for fully dematerialised companies could accelerate adoption, as speculated in industry discussions. The MCA’s proactive approach, evidenced by the deadline extension to June 30, 2025, suggests a commitment to balancing compliance with practicality, which will likely continue to shape future regulations.
India’s M&A market is expected to remain robust in 2025, with a projected uptick in deal volume, particularly in the Asia-Pacific region, as per McKinsey’s Top M&A Trends 2025. India’s strong economic growth, expanding manufacturing sector, and rising consumer spending make it an attractive destination for both domestic and international investors.
Dematerialisation will be a critical enabler, ensuring that M&A transactions are executed with speed, transparency, and compliance. The anticipated increase in private equity-backed deals, driven by pressure to exit older investments, will further underscore the importance of dematerialised securities in facilitating efficient share transfers.
Conclusion
The dematerialisation of securities has emerged as a transformative force in India’s corporate landscape, revolutionising shareholding practices and significantly enhancing the efficiency of M&A transactions in India. By converting physical certificates into electronic records, dematerialisation streamlines share transfers, reduces disputes, and ensures regulatory compliance, making it an indispensable tool for companies navigating India’s dynamic M&A market.
The MCA’s mandate for private companies to dematerialise by June 30, 2025, under Rule 9B, coupled with a robust regulatory framework encompassing the Companies Act, 2013, SEBI regulations, and other laws, underscores the strategic importance of this process. High-profile M&A deals, such as the 2024 Walt Disney-Reliance merger, demonstrate the practical benefits of dematerialisation in facilitating complex transactions.
As technological advancements like blockchain and AI reshape the securities market, and with India’s M&A activity poised for growth in 2025, dematerialisation will remain a cornerstone of corporate strategy, driving transparency, efficiency, and global competitiveness.
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