Mandatory Dematerialisation (ISIN) for Non-Small Private Companies decoded: Practical FAQs

Introduction

The Ministry of Corporate Affairs ("MCA"), through the introduction of Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, extended the mandatory dematerialisation framework to specified private companies.

At first glance, Rule 9B appears to be a simple compliance requirement requiring eligible private companies to obtain an ISIN and facilitate dematerialisation of their securities. However, as professionals started implementing the Rule, several practical questions emerged regarding its applicability, timelines, further issue of securities and the impact of the revised Small Company thresholds.

Initially, the discussion revolved around one simple question:

"Which private companies are required to obtain an ISIN?"

Today, the questions have evolved.

Professionals are now asking:

• My company became a Non-Small Company only this year. What is my compliance timeline?
• Can my company undertake a Further Issue of Securities before completing Rule 9B compliance?
• If my company again qualifies as a Small Company after the revised thresholds, does Rule 9B still apply?
• Does incorporation as a Holding Company or Wholly Owned Subsidiary automatically trigger Rule 9B?
• Is obtaining an ISIN itself sufficient compliance?

While Rule 9B provides the statutory framework, several practical situations continue to require careful interpretation. This article attempts to decode the Rule in a practical manner through statutory analysis, illustrations and frequently asked questions.

Understanding Rule 9B

Rule 9B requires every private company (other than a Small Company and Government Company) to:

• issue securities only in dematerialised form;
• facilitate dematerialisation of all its existing securities; and
• comply with the provisions of the Depositories Act, 1996 and the Rules framed thereunder.

The Rule further states that:

"A private company, which as on the last day of a financial year, ending on or after 31st March 2023, is not a small company as per audited financial statements for such financial year, shall, within eighteen months of closure of such financial year, comply with the provisions of this rule."

A careful reading of the above provision reveals three important principles.

Principle 1 - The trigger date is the last day of the financial year

The Rule does not ask whether the company became a Non-Small Company at any point during the year.

Instead, it asks one simple question:

Was the company a Non-Small Company as on the last day of the financial year based on its audited financial statements?

Principle 2 - Audited financial statements determine applicability

The company's status is determined based on its audited financial statements as on 31 ^st March and not provisional figures or estimated financials or any other event.

Principle 3 - Compliance timeline is linked with the relevant financial year

Once the Rule becomes applicable, compliance is required within eighteen months from the closure of that financial year.

For example:

Based on the Financial Statements of the Company as on 31 ^st March 2025, the Company is not a Small Company; then in such case it must comply with Rule 9B within eighteen months i.e. on or before 30 ^th September 2026.

Practical Illustrations

Illustration 1

ABC Private Limited was a Small Company as on 31 ^st March 2024. During Financial Year 2024-25, in October 2024 its turnover increased, and it ceased to be a Small Company as on 31 ^st October 2024.

In such case, when will Rule 9B apply?

The Rule 9B will not be applicable from 1 ^st November 2024, to examine the applicability of Rule 9B, the Company will still have to wait for the Audited Financial Statements of Financial Year 2024-25 and if based on the Audited Financial Statements as on 31 ^st March 2025 is the Company is not a Small Company then in such case the Company shall comply with rule 9B within eighteen months from the end of 31 ^st March 2025 i.e. on or before 30 ^th September 2026.

Illustration 2

ABC Private Limited was a Small Company as on 31 ^st March 2025.

During October 2025, due to increased turnover, it ceased to qualify as a Small Company.However, after the revised thresholds with effect from 1 ^st December 2025, a Company again becomes aSmall Company and continues to be a Small Company as on 31 ^st March 2026 as per Audited Financial Statement.

Will Rule 9B apply?

No, Rule 9B examines the status of the company as on the last day of the financial year, and not its status during the financial year. Hence, even if the Company was not a Small Company at any time during the financial year, its status still has to be examined as on 31 ^st March, and if the Company is still not small as on 31 ^st March, then eighteen months compliance timeline will start from the end of such financial year and not from the intermediate date from which it ceased to be a Small Company.

Frequently Asked Questions (FAQs)

FAQ 1. If a company was a Small Company as on 31st March 2025, became a Non-Small Company during October 2025, but due to the revised Small Company thresholds effective from 1st December 2025 again qualified as a Small Company and continued to remain so as on 31st March 2026, is it required to comply with Rule 9B?

Answer: No, Rule 9B (2) provides that the applicability of the Rule is to be determined based on the company's status as on the last day of the financial year, as per its audited financial statements. Accordingly, the status of the company during the financial year is not relevant for determining applicability.Therefore, if the company qualifies as a Small Company as on 31 ^st March 2026 based on its audited financial statements, Rule 9B should not apply merely because it had temporarily become a Non-Small Company during October 2025.

FAQ 2. My company is a Non-Small Company as on 31 March 2025. By when should it comply?

Answer: Within eighteen months from the closure of FY 2024-25.Accordingly, the compliance deadline is 30 September 2026.

FAQ 3. If my company becomes a Non-Small Company on 31 March 2026, when should it comply?

Answer: The compliance deadline will be 30 September 2027. This is because Rule 9B determines its applicability at the end of every financial year, based on the company's audited financial statements. Accordingly, the 18-month compliance period is not fixed once and for all; it is calculated with reference to the financial year in which the company first qualifies as a Non-Small Company.

FAQ 4. My company has eighteen months to comply with Rule 9B. During this period, it proposes to undertake a Rights Issue. Can the company proceed without obtaining an ISIN?

Answer: This is one of the most practical questions arising under Rule 9B.

Although Rule 9B grants an overall period of eighteen months to comply with Rule 9B, to obtain the ISIN for all its existing Securities and to facilitate dematerialisation of all its existing securities.However, the rule is considered to be applicable with effect from the first day of the year following the financial year based on whose Audited Financial Statement the Company ceased to be a Small Company. A timeline of eighteen months is to comply with rule i.e. to obtain the ISIN and facilitate the demat.

As per sub-rule 3, Every private company referred to in sub-rule (2) making any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer, after the date when it is required to comply with this rule, shall ensure that before making such offer, entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised in accordance with the provisions of the Depositories Act, 1996 (22 of 1996) and regulations made thereunder.

Let's understand the above with the help of an Example:

Example:

ABC Private Limited ceased to be a small company as per its Audited Financial Statement for the Financial Year ended 31 ^st March 2025.

In October 2025, the Company want to issue Equity Shares on a Rights Issue basis; can it do so?

Answer: No, sinceABC Private Limited ceased to be a small company as per its Audited Financial Statement for the Financial Year ended 31 ^st March 2025, Rule 9B became applicable to it with effect from 1 ^st April 2025, and it has an eighteen-month timeline i.e. on or before 30 ^th September 2026 to comply with Rule 9B. However, since Rule 9B is applicable with effect from 1 ^st April 2025, it cannot make any offer for the issue of securities, buyback of securities, issue of bonus shares, or rights offer until it complies with Rule 9B, even if the timeline has not yet expired.

FAQ 5. Does incorporation as a Holding Company or Wholly Owned Subsidiary/Subsidiary require immediate Rule 9B compliance?

Answer: No.Merely because a company is incorporated as a Holding Company or Subsidiary Company and, therefore, falls outside the definition of a Small Company under Section 2(85) of the Companies Act, 2013, it does not become immediately liable to comply with Rule 9B.

The applicability of Rule 9B is required to be determined as on the last day of the relevant financial year, based on the company's audited financial statements, and the company is thereafter allowed the prescribed period of 18 months to comply with the Rule, wherever applicable.

FAQ 6. Is obtaining an ISIN enough?

Answer: No.Obtaining an ISIN is only one component of Rule 9B compliance.

Companies must also ensure:

• Dematerialisation of existing securities;
• Issue of future securities only in dematerialised form;
• Compliance with applicable Depository requirements; and
• Compliance with PAS-6 and other applicable provisions, wherever required.

FAQ 7. If a company completes Rule 9B compliance before the expiry of the 18-month period i.e. 30 ^th September, when should it file its first e-Form PAS-6?

Answer: Rule 9B (5) provides that the provisions of Rule 9A (4) to Rule 9A (10) shall apply mutatis mutandis to companies governed by Rule 9B. Further, Rule 9A (8) requires every company governed by the Rule to file e-Form PAS-6 within 60 days from the conclusion of each half-year, duly certified by a Practising Company Secretary or a Practising Chartered Accountant.

However, Rule 9B does not expressly specify from which half-year the obligation to file PAS-6 commences where a company voluntarily completes Rule 9B compliance before the expiry of the prescribed 18-month period.

In the absence of any specific clarification from the Ministry of Corporate Affairs, a reasonable view is that once a company has obtained an ISIN and established depository connectivity, it should commence filing e-Form PAS-6 from the first applicable half-year thereafter, as the reconciliation mechanism under Rule 9A has effectively become operational.

Illustration: A company is required to comply with Rule 9B by 30th September 2026 (being 18 months from the closure of FY 2024-25). However, it obtainedan ISIN and established depository connectivity in March 2026.

Question: Should the company file e-Form PAS-6 for the half-year ended 31st March 2026, or only after 30th September 2026?

Author's View: it should commence filing e-Form PAS-6 for the half-year ended 31st March 2026, on or before 30th May 2026 (i.e., within 60 days from the conclusion of the half-year), instead of waiting until the expiry of the 18-month compliance period.

FAQ 8. What is the biggest misconception regarding Rule 9B?

Answer: Many companies believe Rule 9B was a one-time compliance requirement applicable only to companies covered as on 31 March 2023.However, Rule 9B requires companies to evaluate their status at the end of every financial year. Accordingly, the applicability of the Rule should be reviewed annually based on the audited financial statements.

Having advised companies on Rule 9B compliance, the following practical observations may be helpful:

• Treat Rule 9B as an annual compliance checkpoint, not as a one-time compliance exercise.
• Review the applicability of Rule 9B immediately after finalisation of the audited financial statements.
• If a Rights Issue, Bonus Issue, Preferential Allotment or Buy-back is proposed, evaluate the implications of Rule 9B before initiating the transaction.
• Obtaining an ISIN should be viewed as the beginning of compliance, not the end.
• Companies approaching the revised Small Company thresholds should monitor their status every financial year to avoid missing the prescribed timeline.

FAQ 9. My company has eighteen months to comply with Rule 9B. During this period i.e. before expiry of eighteen months, existing shareholders of my Company want to transfer their shares to others; can they transfer the Shares Physically before the Company obtains the ISIN?

Answer: Sub-rule 4 provides that Every holder of securities of the private company referred to in sub-rule (2) who intends to transfer such securities on or after the date when the company is required to comply with this rule, shall get such securities dematerialised before the transfer; or who subscribes to any securities of the concerned private company whether by way of private placement or bonus shares or rights offer on or after the date when the company is required to comply with this rule shall ensure that all his securities are held in dematerialised form before such subscription.

Hence, during the interim period of eighteen months or before expiry of eighteen months, the existing shareholders of the Company cannot transfer the Shares without ensuring compliance with Rule 9B. Existing Shareholders of the Company shall get such shares dematerialised before the transfer and ensure that transfer of such shares is done in demat mode.

Quick Compliance Checklist

Before closing your annual secretarial compliance file, ask:

• Is the company a Small Company as on the last day of the financial year (based on audited financial statements)?
• If not, have you calculated the 18-month Rule 9B compliance timeline?
• Has the Company obtained ISIN for all its securities?
• Has the Company initiated/completed the process of dematerialisation of all its existing securities?
• Will all future securities be issued only in dematerialised form?
• Before undertaking a Rights Issue, Bonus Issue, Preferential Allotment or Buy-back, have you checked the applicability of Rule 9B?
• Has e-Form PAS-6 been filed within 60 days from the end of the relevant half-year (where applicable)?

Conclusion

Rule 9B is much more than an ISIN requirement. It introduces an ongoing compliance framework that private companies must revisit every financial year.

The most important takeaway is simple:

Don't ask whether your company became a Non-Small Company during the year. Ask whether it is a Non-Small Company as of the last day of the financial year based on its audited financial statements.

A timely annual review can help companies identify the applicable compliance timeline, avoid last-minute challenges and ensure seamless execution of future corporate actions.

Disclaimer: The views expressed in this article are the personal and professional views of the author based on the Companies Act, 2013, the Companies (Prospectus and Allotment of Securities) Rules, 2014 and the applicable legal framework. They are intended for educational purposes and should not be construed as legal advice. Readers are advised to seek professional guidance based on the specific facts and circumstances of each case.