Background

The concept of share ownership in India has evolved from traditional physical share certificates to electronic holding through the depository system. While a share certificate remains a statutory document evidencing title, the regulatory shift under Rule 9A and Rule 9B mandates dematerialisation for specified classes of companies.

A share certificate is a document issued under the common seal (if any) of a company, or signed by two directors or by a director and the company secretary (where appointed), specifying the shares held by any member.

The governing framework includes:

• • Companies Act, 2013
  • Companies (Share Capital and Debentures) Rules, 2014
  • Depositories Act, 1996
  • SEBI (Depositories and Participants) Regulations, 2018

This article explains the legal position of share certificates and the mandatory dematerialisation regime under Rule 9A and Rule 9B.

Requisites for Issuing Share Certificate

The process of issuing share capital begins with allotment of shares.

1. Board Approval

• • A Board Resolution must approve:
    • Allotment of shares
    • Issue of share certificates
    • Printing of certificate forms (if required)

       2. Distinctive Numbering (Section 45)

Every share must be assigned a distinctive number.

Exception:
Not applicable where shares are held in dematerialized form and recorded with a depository.

Compliance Requirements

Part I – Share Certificate under the Companies Act, 2013

1. Contents and Form

As per Rule 5 of the Companies (Share Capital and Debentures) Rules, 2014:

• • Share certificates must be issued in Form SH-1.
  • They must contain:
    • Name of shareholder
    • Number and class of shares
    • Distinctive numbers
    • Amount paid-up
    • Certificate number
    • Authorized signatures

Details must also be recorded in the Register of Members under Section 88.

Special Provisions

One Person Company (OPC)

• • Signed by one director and Company Secretary or authorized person.

Facsimile Signatures

• • Mechanical or digital signatures permitted.
  • Rubber stamp signatures not allowed.

Signatories are personally responsible for signature security

      2. Duplicate Share Certificates

A duplicate certificate may be issued if:

• • The original is lost or destroyed; or
  • The original is defaced, mutilated, or torn and surrendered.

Fraudulent issue of duplicate certificates attracts severe penalties under Section 447 (Fraud).

Time Frame for Issuing Share Certificate

After incorporation, a company is required to issue share certificates to its subscribers within a period of two months from the date of incorporation. In the event of further allotment of shares to new or existing shareholders, the corresponding share certificates must be issued within two months from the date of allotment. In cases involving transfer of shares, the company must deliver the share certificates to the transferees within one month from the date of receipt of the duly executed instrument of transfer.

Part II– Shift to Dematerialisation

1. Concept of Dematerialisation

Dematerialisation (“demat”) is the process of converting physical share certificates into electronic form held with a depository.

Under the Depositories Act, 1996, securities held in electronic form are evidenced by depository records, which serve as prima facie proof of ownership.

In demat mode:

• • Physical certificates cease to operate as proof of title.
  • Ownership is reflected in the records of the depository and the beneficial owner’s account.

Part III – Rule 9A: Issue of securities in dematerialised form by unlisted public companies

1. Rule 9A of the Companies (Share Capital and Debentures) Rules, 2014 applies to:

• • All unlisted public companies

Effective from 2 October 2018

Mandatory Requirements under Rule 9A

Unlisted public companies must:

1. 1. Issue securities only in dematerialised form.
   2. Facilitate dematerialisation of all existing securities.
   3. Obtain ISIN for each type of security.
   4. Inform all security holders about the demat facility.
   5. Restrictions before Corporate Actions

Before undertaking:

• • Further issue of securities
  • Buyback
  • Bonus issue
  • Rights issue

The entire holding of promoters, directors, and KMPs must be in dematerialised form.

Shareholder Obligations

• • Transfer of securities is permitted only in demat form.
  • A person subscribing to securities must ensure existing holdings are dematerialised.

Compliance and Reporting

• • Form PAS-6 must be filed within 60 days of each half-year.
  • Certification by a practicing Company Secretary or Chartered Accountant is mandatory.
  • Admission and annual fees must be paid to depositories and RTAs.

Exemptions under Rule 9A

Rule 9A does not apply to:

• • Nidhi companies
  • Government companies
  • Wholly-owned subsidiaries

Note: Section 8 companies having share capital are also required to abide this rule.

Part IV – Rule 9B: Issue of Securities in Dematerialised form by Private Companies

Applicability: Private Company which is not a *Small Company

Rule 9B inserted after Rule 9A, viz.:

• • Every private company other than small company to issue shares only in demat form and facilitate demat of all securities. Such Company to comply with the said provisions within 18 months of closure of financial year as on 31.03.2023 which extended till 30.06.2025. While the Producer companies are required to comply within 5 years of the closure of financial year as on 31.03.2023

• • Entire holding of the promoters/directors/KMP to be dematerialised before making any offer for issue/buy back/bonus/rights issue, after the date when it is required to comply with this rule
  • All transfer of shares by existing holders on or after the date when the company is required to comply with this rule, shall be allowed only after demat
  • Any subscription by way of private placement or bonus shares or rights offer by existing holder of securities on or after the date when the company is required to comply with this rule, shall be allowed only after demat.
• Eligible companies shall be required to file PAS-6 half-yearly. The compliance structure mirrors Rule 9A.

*Small Company means a company, other than a public company,—

(i) paid-up share capital of which does not exceed ten crore rupees and

(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed one hundred crore rupees.

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;

Exemption

Government companies are exempt from Rule 9B.

Note: Section 8 companies having share capital are also required to abide this rule

Part- V: Issue of Duplicate Share Certificate – This shall not be applicable where the shares are required to be issued/converted in demat mode.

1. Duplicate certificates may be issued only if the original:

• • Is lost or destroyed; or
  • Is defaced, mutilated, or torn and surrendered.

1. Mandatory Safeguards

• • Board Resolution required.
  • Documentary evidence & indemnity.
  • Investigation cost recoverable.
  • Duplicate certificate must be clearly marked as “DUPLICATE”

Part- VI: Control, Custody & Record Management

After issuance, strict control mechanisms apply.

1. Printing and Blank Certificate Forms (Rule 7 of the Companies (Share Capital and Debentures) Rules, 2014)

• • Printing requires Board approval.
  • Forms must be consecutively machine-numbered.
  • Printing blocks and facsimile signatures must be securely stored.

     2. Custodial Responsibility

Custody entrusted to:

• • Company Secretary; or
  • Board-authorized committee; or
  • Authorized Director (if no CS appointed).

Custodian accountable to Board.

    3. Preservation of Documents

Minimum Preservation: 30 years for all books and documents.

Disputed Cases: Permanent preservation.

Surrendered Certificates

• • Must be stamped “CANCELLED” in bold.
  • May be destroyed after 3 years.
  • Destruction requires:
    • Board Resolution
    • Supervised destruction

Exception:
Not applicable where cancellation occurs under the Depositories Act in compliance with SEBI regulations.

Part VII: Grievance Redressal

Security holder grievances are adjudicated by the:

• Investor Education and Protection Fund Authority

The Authority coordinates with SEBI before initiating action against:

• • Depositories
  • Participants
  • RTAs

Penalty & Punishment

• Penalties for Fraudulent Duplication: Companies issuing fraudulent duplicate certificates face fines ranging from five to ten times the face value of involved shares or Rs. 10 crores (whichever is higher). Officers in default are liable under Section 447.
• Section 450 – company and every officer of the company in default or such other person shall be liable to a penalty of Rs. 10,000, and in case of continuing default, with a further penalty of Rs. 1000 for per day of default, subject to a max Rs. 2 lakhs in case of a company and Rs. 50000 in case of an officer who is in default or any other person