The unlisted share market in India has seen rapid growth, with investors actively participating in pre-IPO opportunities of unlisted private limited and public limited companies. However, a recent compliance update from NSDL (National Securities Depository Limited) is set to change the process for off-market transfers in Private Limited Companies.

As per NSDL Circular No. NSDL/POLICY/2025/0071, effective June 3, 2025, all off-market share transfers involving private limited companies will now require additional documentation for execution.

What Has Changed?

Earlier, submitting a Delivery Instruction Slip (DIS) to the Depository Participant (DP) was sufficient to execute an off-market transfer. Now, in the case of private limited companies, the following will also be required:

• A confirmation letter from the company,

• Signed by the Company Secretary, Managing Director, or an authorized official,

• Declaring that the transfer complies with the Companies Act, 2013 and the company’s Articles of Association (AoA).

Without this company confirmation, the DP will not process the off-market transaction.

Not Applicable to Public Limited (Unlisted) Companies

It is important to note that this rule does not apply to unlisted public limited companies, such as NSE, Studds, HDB Financial, and Hero FinCorp. These companies typically do not restrict the transferability of shares unless contractually specified in shareholder agreements.

How to Differentiate: Private vs Public (Unlisted)

To confirm a company’s classification, refer to its MCA records, MoA/AoA, or its official website.

Why This Rule Was Introduced

Private companies are legally required to restrict share transfers. Their Articles of Association often mandate:

• Prior approval from the board of directors,

• Right of first refusal to existing shareholders,

• Internal compliance before executing transfers.

NSDL's new rule ensures these internal procedures are followed by requiring a written declaration from the company before a transfer is allowed.

Example: Razorpay Share Transfer

If an HNI wants to transfer 100 shares of Razorpay, they must now obtain a formal confirmation letter from Razorpay stating the transfer complies with the company’s internal rules. Without this, NSDL will not process the transfer.

This ensures that companies are fully aware of and approve any changes in their shareholder structure.

Impact on Investors

• Investors must now work with the company or their broker to obtain the required documents.

• Off-market transfers may take more time due to the additional compliance requirement.

• Always check whether the company is private or public before initiating a transfer.

Conclusion

This move by NSDL strengthens regulatory control in the unlisted space, aligning off-market transactions with corporate governance norms. While it introduces more steps, it also adds a layer of security and legitimacy to share transfers in private companies.

Understanding the nature of the company — Private vs. Public — is now crucial for any investor or broker dealing in unlisted shares.