The National Securities Depository Limited (NSDL) has released a new policy circular introducing additional compliance requirements for the processing of off-market transfer instructions in shares of Private Limited Companies.
The move, issued under the purview of Section 2(68) of the Companies Act, 2013, aims to strengthen oversight and ensure that share transfers within private companies adhere strictly to regulatory provisions.
Mandatory Delivery Instruction Slip (DIS):
Demat account holders intending to transfer shares of a private limited company must continue to submit a duly filled and signed Delivery Instruction Slip (DIS) to their Depository Participant (DP).
Additional Confirmation Letter Required:
Alongside the DIS, participants must now obtain a consent/confirmation letter from the respective Private Limited Company. This confirmation must state that the transfer complies with the provisions of the Companies Act, 2013, and that all necessary internal approvals have been secured.
Format for Confirmation:
The circular provides an annexure template to be used by companies, signed by the Company Secretary, Managing Director, or an authorized signatory, confirming the legitimacy of the transfer.
Compliance Deadlines
The circular also reiterates forthcoming compliance deadlines for depository participants, including:
- Investor Grievance Report (Monthly): By 10th of the following month.
- Same Mobile Number/Email Report (Monthly): Before 27th of the following month.
- AI/ML Reporting (Annual): Within three months of the financial year-end.
- Annual System Audit Report: By June 30, 2025.
- Annual Cyber Audit Report: By June 30, 2025.
Why This Matters
Private limited companies, by definition, restrict share transfers and prohibit public invitations for securities subscriptions. With these new measures, NSDL seeks to prevent unauthorized or disputed share transfers and ensure participants exercise due diligence before executing transactions.
This policy will particularly impact shareholders of family-owned businesses and closely-held entities, where shareholding disputes often arise. By requiring company-issued confirmations, NSDL aims to bring clarity, reduce fraud risk, and strengthen corporate governance practices in private companies.
The circular has been signed by Mr. Arockiaraj, Manager, Participant Services at NSDL, and is effective immediately.
