Addressing a long-awaited relief for investors, the Securities and Exchange Board of India (“SEBI”) has released a Consultation Paper inviting public comments on the proposed amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”). The proposed amendments primarily seek to permit investors to lodge share transfer forms executed prior to April 1, 2019 and enable processing of the same.

Background

To promote dematerialisation of securities, SEBI had discontinued the transfer of securities held in physical form with effect from April 1, 2019, through an amendment to the LODR Regulations. The proviso to Regulation 40(1) stipulates that no transfer of shares shall be processed unless such shares are dematerialised. However, SEBI had granted relief to investors who had lodged transfer requests before April 1, 2019, but whose requests were returned or rejected due to deficiencies in documentation, allowing them to re-lodge such requests up to March 31, 2021.

Pursuant to the recommendation of a Panel of Experts (“Panel”) constituted by SEBI, which consists of Registrars and Share Transfer Agents (“RTAs”), listed companies, and legal professionals, SEBI has extended the relief granted up to March 2021 by opening up a limited window from July 7, 2025 to January 6, 2026 for re-lodgement of documents (only where it was returned or rejected due to deficiencies).

Upon examining data relating to the requests received in the abovementioned window, submitted by the top eight RTAs, SEBI and the Panel observed that 66% of the requests that were received pertained to fresh lodgement of transfer deeds and not re-lodgement of documents for deficiencies. Considering this, the Panel recommended creating a temporary exception, subject to a sunset clause, to enable investors to claim rightful ownership of their securities while continuing to encourage dematerialisation.

Changes being proposed under the Consultation Paper:

New relief window

Accordingly, SEBI has proposed to amend Regulation 40(1) of the LODR Regulations to provide that the restriction on transfer of securities exclusively in dematerialised form shall not apply for a period specified by SEBI. This relaxation would be limited to investors who had executed share transfer deeds prior to April 1, 2019.

Due diligence framework

Further, SEBI has prescribed that RTAs and listed entities must adhere to the due process for such transfer-cum-dematerialisation requests, including the due diligence procedure outlined in Annexure-A of the Consultation Paper. It is also mandated that the securities in question shall be credited only in dematerialised form to the demat account of the transferee.

Changes to processing ISRs

The Consultation Paper also seeks public feedback on another proposal concerning the process of issuance of the Letter of Confirmation (“LoC”) by listed entities or RTAs for processing Investor Service Requests (“ISRs”) including issuance of duplicate certificates, transfer, transmission, transposition, claims from unclaimed suspense accounts, renewal or exchange of certificates, endorsement, and corporate actions. Under the existing framework, investors are required to submit relevant documents to the listed entity or RTA, which upon verification issues an LoC valid for 120 days. The investor must then approach the Depository Participant (DP) within this validity period to dematerialise and credit the securities to their demat account.

SEBI has noted that this process involves unnecessary efforts and causes inconvenience to the investors, thereby undermining the ease of investing. To streamline the procedure and enhance efficiency, SEBI has proposed to discontinue the LoC mechanism. In its place, SEBI has proposed that a system wherein the Depositories would be required to develop a process which enables RTAs or listed entities to directly credit the securities to the investor’s demat account after completion of due process. For this purpose, the investor must open/ hold a demat account and submit the Client Master List (CML) of his/ her account along with the request.

Editorial comment:

Through these proposals, SEBI aims to simplify the securities transfer and dematerialisation framework, providing much-needed relief to investors while promoting dematerialisation along with improving ease of investing.