[Gungun Sharma and Vibhor Maloo are 4th year B.A. LL.B. (Hons.) students at Hidayatullah National Law University, Raipur]
On October 17, 2025, Securities and Exchange Board of India (“SEBI”) issued a consultation paper proposing amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) to resolve a long-standing issue of transfer of shares executed in physical form before the dematerialisation cut-off of April 1, 2019, but never registered or dematerialised. At first glance, the proposal appears to be an investor-friendly corrective, aimed at restoring ownership rights to those stranded by administrative delays, lack of awareness, or procedural lapses.
However, the reform sits at the intersection of multiple legal regimes, notably the Companies Act, 2013, the Depositories Act, 1996, and the SEBI (Depositories and Participants) Regulations, 2018, which raises questions about competence and process. By reopening the window for pre-2019 physical transfers, SEBI’s proposal raises fundamental questions about finality, delegated competence, and market integrity. If this reform is to deliver equitable relief without unsettling the structures of India’s dematerialised market, it must be anchored in clarity, inter-regulatory coordination, and calibrated safeguards. In this post, we examine SEBI’s proposal through those lenses and suggest practical measures to reconcile investor relief with systemic stability.
Background and Regulatory Context
The discontinuation of transfers in physical form, effective April 1, 2019, was not a mere procedural change, but rather transformational. SEBI’s amendments required transfers to be processed in electronic form through depositories such as NSDL and CDSL, to reduce forged deeds, duplicate certificates and opaque beneficial ownership. Dematerialisation created auditable electronic ledgers that reduced transactional friction and litigation risk. Yet, this transition left some transfers stranded, deeds executed before 1 April 2019 that were never registered or re-lodged due to deficiencies, the death or dissolution of sellers, or procedural issues. SEBI’s consultation paper records these common causes for missed lodgement. In particular, SEBI’s consultation paper proposes a time-bound exception to the LODR Regulations to permit registration of certain pre-2019 transfers after due diligence by registrars and transfer agents (“RTAs”) and listed entities, and to simplify the dematerialisation of remaining physical certificates. While the underlying objective is fathomable, the implementation route, through subordinate legislation under the LODR Regulations, prompts a crucial legal inquiry on whether SEBI can validly and safely revive unregistered physical transfers without explicit coordination with the Companies Act framework.
Legal and Practical Risks
The core legal tension lies between administrative facilitation and the statutory structure governing transfer finality. Section 56 of the Companies Act, 2013 obliges a company to register transfers that are duly executed and lodged within prescribed limits. A transfer not presented within this 60-day statutory period may lose efficacy, rendering the transferee’s claim unenforceable.
If SEBI’s amendment functions as a de facto amnesty permitting delayed lodgements through regulatory fiat, it may invite judicial scrutiny for exceeding the scope of the parent statute. Courts have traditionally guarded the boundaries of delegated legislation, especially where subordinate rules appear to override statutory conditions of validity. The amendment must therefore be drafted to complement the Companies Act and, in practice, SEBI should aim at seeking a clarification from the Ministry of Corporate Affairs (“MCA”) or a joint notification to avoid ultra vires challenges.
Beyond legality, operational challenges abound. RTAs may face the near-impossible task of authenticating decades-old transfer deeds, many of which predate digital archives, or involve entities that have since undergone mergers, name changes, or registrar transitions. Verification gaps could reintroduce the very risks that dematerialisation was designed to extinguish: forged instruments, duplicate claims, and benami holdings. Further, once such transfers are dematerialised and credited to a beneficiary account, reversing them is nearly impossible both legally and operationally. A single erroneous registration could therefore have irreversible consequences for companies and downstream investors.
Governance and Compliance Challenges for Listed Entities
Revalidating old share transfers has implications that extend well beyond procedural mechanics. It affects the foundations of corporate governance, the accuracy of beneficial ownership records, the integrity of shareholding patterns, and the transparency of disclosures under the LODR framework. The dematerialisation regime had considerably enhanced traceability by ensuring that promoter and public shareholdings were recorded in verifiable electronic form, thereby reducing opacity in ownership structures. Allowing companies to reopen and register pre-2019 transfers without corresponding governance checks could inadvertently dilute these gains. There is a tangible risk that related parties, promoters, or insiders might exploit this relaxation to legitimise informal or disputed transactions, effectively obscuring genuine ownership and confounding compliance with minimum public shareholding or insider-trading norms.
To prevent misuse, SEBI’s final framework should mandate board-level or audit committee oversight before any historical transfer is approved for registration or dematerialisation. Such oversight would strengthen institutional accountability and ensure directors actively assess potential conflicts of interest. Further, listed entities should be required to disclose, preferably through their annual corporate governance reports, the number, value, and nature of transfers regularised under this window. This disclosure would promote transparency and enable investors to distinguish genuine hardship cases from opportunistic conversions.
A related issue concerns risk allocation. If a transfer regularised under this mechanism is later disputed, it remains unclear whether responsibility would rest with the company, the Registrar and Transfer Agent (RTA), or SEBI itself. The consultation paper offers no indemnity or safe-harbour provisions for such aspects. In the absence of such clarity, RTAs may adopt a risk-averse approach, undermining the very purpose of the reform. A clearly defined liability and protection framework is therefore essential to maintain both regulatory confidence and market trust.
Regulatory Coordination and Comparative Insight
The proposed reform also tests the institutional boundaries between SEBI and the MCA, underscoring the need for coordinated guidance. The registration of share transfers under section 56 of the Companies Act is fundamentally a company law function, while SEBI’s authority under the LODR Regulations is confined to disclosure and governance of listed entities. Allowing companies to register old physical transfers necessarily touches the substantive rights of shareholders, an area traditionally governed by the Companies Act and not SEBI’s rule-making power.
A pragmatic solution lies in inter-regulatory coordination, a joint clarification or notification issued in consultation with the MCA, explicitly recognising SEBI’s facilitative framework as consistent with the Act’s objectives. Without such coordination, companies may face conflicting regulatory expectations or legal uncertainty regarding the validity of re-registered transfers.
Internationally, transitions to dematerialised shareholding were managed through sunset clauses and structured verification mechanisms. For instance, the United Kingdom’s Companies Act 2006 and Singapore’s Securities and Futures (Central Depository System) Regulations provided limited grace periods for late lodgements accompanied by documentary proof and board certification. SEBI can draw from these models to design a conditional, time-bound, and auditable process that safeguards both investors and intermediaries.
Policy Calibration: Conditional Regularisation as a Middle Path
The objective of SEBI to alleviate genuine hardship is commendable; however, the principles of finality and systemic integrity must be balanced against the alleviation. A regime of conditional regularisation provides a compromise. Such a framework should require documentary proof that transfer deeds were executed before 1 April 2019, verified through notarial or registrar records, along with evidence of stamp duty payment and consideration where applicable. It should also insist on complete KYC verification of both transferor and transferee, including PAN linkage, to ensure that only bona fide transactions are covered.
To prevent prolonged uncertainty, SEBI could prescribe a limited submission window, for instance, six months, within which all applications must be filed and processed. Each case should be subject to audit committee sign-off to ensure independent supervision, and companies should be required to disclose in their annual filings the number and value of shares regularised under the scheme. Finally, introducing a statutory safe harbour for companies and registrars that act in good faith and follow prescribed procedures would encourage participation and reduce litigation risk. Taken together, these measures would preserve investor relief without reopening established ownership structures or exposing intermediaries to disproportionate liability.
Conclusion
SEBI’s proposal to allow registration and dematerialisation of pre-2019 physical transfers is a commendable step toward restoring investor rights and closing a long-standing regulatory gap. However, its effectiveness will hinge on SEBI’s ability to design a framework that balances equitable relief with legal certainty and market integrity. Without precise procedural rules, inter-agency coordination, and strong governance safeguards, the amendment could unintentionally reintroduce uncertainty into a securities market painstakingly cleaned through dematerialisation. A conditional, transparent, and time-limited regularisation mechanism, reinforced by board oversight, registrar certification, and statutory safe harbour, can reconcile investor protection with market integrity. Ultimately, SEBI’s initiative will succeed only if it respects the boundary between facilitation and finality, ensuring that equitable relief does not come at the expense of legal certainty, the cornerstone of India’s dematerialised capital markets.
– Gungun Sharma & Vibhor Maloo