TL;DR
- Yes, unless the company is a small company or a Government company.
- Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules 2014 requires every other private company to issue securities only in demat form and to facilitate demat of existing securities within 18 months of the financial year end at which it was not a small company.
- Companies that were not small on 31 March 2023 had until 30 June 2025.
Quick Answer: Yes, every private company must demat its shares unless it is a small company or a Government company. Rule 9B gives it 18 months from the financial year end at which it was not a small company. Companies that were not small on 31 March 2023 had until 30 June 2025, and later years run on the same 18-month clock.
Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules 2014 was inserted by G.S.R. 802(E) of 27 October 2023. It extends to private companies the demat regime that Rule 9A has applied to unlisted public companies since 2018. Once its date arrives, the company may issue securities only in demat form and must facilitate demat of every existing security.
Rule 9B at a glance
| Point | Position | Provision |
|---|---|---|
| Who | Every private company other than a small company | Rule 9B(1) |
| Not covered | Government companies | Rule 9B(6) |
| Test date | Last day of a financial year ending on or after 31 March 2023, per audited financial statements | Rule 9B(2) |
| Deadline | Within 18 months of the close of that financial year | Rule 9B(2) |
| Producer companies | Within five years of the close of that financial year | Proviso to Rule 9B(2), from 20 September 2024 |
| Mechanics | Rule 9A(4) to (10) apply, including the half-yearly return | Rule 9B(5) |
Which Private Companies Must Demat Their Shares Under Rule 9B?
Every private company that is not a small company on the last day of a financial year ending on or after 31 March 2023. Rule 9B(1) uses no other size or activity test. A Government company is outside the rule under Rule 9B(6).
Are Wholly Owned Subsidiaries and Nidhis Exempt?
No, not under Rule 9B. The exemptions in Rule 9A(11) for a Nidhi and a wholly owned subsidiary apply only to unlisted public companies. Rule 9B(5) imports sub-rules (4) to (10) of Rule 9A, not sub-rule (11), so a private wholly owned subsidiary must comply.
How Is the Small Company Exemption Tested?
At the end of each financial year, on the audited financial statements, using the limits in force on that date. For year ends up to 31 March 2025 a small company had paid-up capital of not more than ₹4 crore and turnover of not more than ₹40 crore, under G.S.R. 700(E) of 15 September 2022. From the year ending 31 March 2026 the limits are ₹10 crore and ₹100 crore, under G.S.R. 880(E), in force from 1 December 2025.
Which Companies Can Never Be Small?
The proviso to section 2(85) of the Companies Act 2013 excludes three kinds of company, however small their capital or turnover.
| Excluded from the small company definition | Effect under Rule 9B |
|---|---|
| A holding company or a subsidiary company | Must demat, whatever its size |
| A company registered under section 8 | Must demat, whatever its size |
| A company governed by any special Act | Must demat, whatever its size |
A private subsidiary with ₹1 lakh of capital is therefore inside Rule 9B, unless it is a Government company. The same year-end status also decides which annual return on Form MGT-7 or MGT-7A the company files. Whether a particular group company is caught can be checked with advisory services.
What Is the Rule 9B Deadline and the Latest MCA Position?
The deadline is 18 months from the close of the first financial year, ending on or after 31 March 2023, at which the company was not a small company. One fixed date was set for the first cohort: G.S.R. 131(E) of 12 February 2025 allowed companies that were not small on 31 March 2023 to comply by 30 June 2025.
| Not a small company as on | Small company limits applied | Comply by |
|---|---|---|
| 31 March 2023 | ₹4 crore capital, ₹40 crore turnover | 30 June 2025 (extended date; producer companies have five years) |
| 31 March 2024 | ₹4 crore capital, ₹40 crore turnover | 30 September 2025 |
| 31 March 2025 | ₹4 crore capital, ₹40 crore turnover | 30 September 2026 |
| 31 March 2026 | ₹10 crore capital, ₹100 crore turnover | 30 September 2027 |
The later dates are 18 months from each 31 March. As at 28 October 2026, Ministry of Corporate Affairs (MCA) has notified no further amendment to Rule 9B after G.S.R. 131(E). Each later date can be held on the secretarial and company-law calendar for the year in which it falls.
Do Producer Companies Have Longer?
Yes. G.S.R. 583(E) of 20 September 2024 inserted a proviso giving a producer company five years from the close of the relevant financial year.
What Does Rule 9B Compliance Involve?
Rule 9B(5) applies sub-rules (4) to (10) of Rule 9A, so a private company follows the same steps as an unlisted public company.
| Step | What it requires | Provision |
|---|---|---|
| ISIN | Apply to a depository and secure an ISIN for each type of security | Rule 9A(4) |
| Inform holders | Tell all existing security holders that demat is available | Rule 9A(4) |
| Fees and deposit | Pay depository and registrar fees on time, and keep a security deposit of not less than two years' fees | Rule 9A(5) |
| Promoters, directors and KMP | Their entire holdings must be in demat before any new offer, buy-back, bonus or rights issue | Rule 9B(3) |
| Transferring holders | A holder must demat before transferring securities | Rule 9B(4) |
| Half-yearly return | Reconciliation of share capital audit report to the Registrar | Rule 9A(8), through Rule 9B(5) |
The half-yearly return is Form PAS-6, covered in the guide to who must file PAS-6 and when it is due. It is a Registrar of Companies (ROC) filing within the wider ROC compliance for a private limited company, and it needs a named owner, such as the company secretary or compliance officer.
What Happens If a Company Does Not Comply?
Rule 9A(6), imported by Rule 9B(5), bars a new offer, buy-back, bonus or rights issue while depository or registrar fees remain unpaid. Promoters' and directors' holdings must also be in demat before any such offer. Rule 9B has no penalty clause of its own, so the residual penalty under section 450 of the Companies Act may apply.
How Is the Demat Clock Tracked Across a Group?
The test resets every year, so a company that was small last year can be inside Rule 9B this year. A compliance management platform holds each entity's 18-month date and the ISIN and PAS-6 evidence.
LexComply does not issue ISINs or file returns; the depository, the registrar and the company do. You can get in touch to see how the clock would be tracked.
Common Mistakes to Avoid
- Treating a small subsidiary as exempt. The proviso to section 2(85) means a subsidiary company can never be a small company, so Rule 9B applies to it.
- Carrying the Rule 9A(11) exemptions across. Rule 9B(5) imports only sub-rules (4) to (10) of Rule 9A, so a private wholly owned subsidiary has no exemption.
- Applying 30 June 2025 to every company. G.S.R. 131(E) fixed that date only for companies that were not small on 31 March 2023; later years run 18 months from each year end.
- Testing size on unaudited figures. Rule 9B(2) tests status as per the audited financial statements at the financial year end.
- Applying the new limits to past year ends. Status on 31 March 2023, 2024 and 2025 is tested at ₹4 crore of capital and ₹40 crore of turnover; the ₹10 crore and ₹100 crore limits apply from the year ending 31 March 2026.
- Allotting before promoters are in demat. Rule 9B(3) requires the entire holdings of promoters, directors and KMP to be dematerialised first.
Legal Disclaimer
This article is general information on Indian company law, current as at the date shown above. It is not legal advice and does not take account of any particular company's facts. Obtain professional advice before acting on any position described here.