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NSDL’s new circular mandates company consent before any off-market transfer of dematerialised shares in private limited companies — a significant procedural shift that M&A, PE, and VC deal parties must now plan around.
On June 3, 2025, the National Securities Depository Limited (NSDL) issued Circular No. NSDL/POLICY/2025/0071, introducing an additional procedural requirement for off-market transfers of dematerialised shares of private limited companies. The circular mandates that any shareholder intending to transfer such shares must now obtain a formal prior consent letter from the private company, along with submitting a Delivery Instruction Slip (DIS), before executing the transfer.
This development is especially relevant for mergers and acquisitions, private equity, and venture capital transactions, where dematerialised shares are commonly used and timelines are often tight.
Prior to this circular, a shareholder could initiate an off-market share transfer by simply submitting a DIS to their depository participant (DP). While such transfers were subject to restrictions in the company’s Articles of Association or shareholder agreements, there was no mechanism at the depository level to verify compliance with these restrictions. In most cases, companies only became aware of such transfers after the fact, typically upon receiving an updated beneficial ownership (BENPOS) statement, limiting their ability to proactively enforce transfer restrictions.
Under the new framework, NSDL requires that shareholders obtain a consent or confirmation letter from the private company before executing any off-market transfer. This letter must be issued on the company’s letterhead, signed by the Company Secretary, Managing Director, or an Authorised Signatory, and must confirm that the transfer is in accordance with the Companies Act, 2013. It must include specific details such as the DP ID and Client ID of both transferor and transferee, their names and PAN details, the ISIN and quantity of shares being transferred, and the stated reason for the transfer.
The circular expressly references Section 2(68) of the Companies Act, 2013, which mandates that private limited companies restrict the transferability of their shares. It further draws on Section 58(1) and (2), which permits such companies to impose transfer restrictions through their Articles. The circular addresses a long-standing enforcement gap by enabling companies to pre-approve dematerialised share transfers at the depository level, thereby operationalising statutory restrictions in a practical manner.
The new requirement has several notable implications for private market transactions. First, it grants companies greater control by aligning depository processes with the Companies Act framework, allowing them to formally enforce conditions such as lock-ins, rights of first refusal, or board approval requirements before a transfer is processed. Second, it may cause delays in deal closures, as the circular prescribes no specific timeline for companies to issue or refuse consent, introducing uncertainty in transactions with tight schedules or regulatory deadlines. Third, transaction documents such as share purchase agreements and investment agreements should now explicitly require the company to issue the consent letter within a defined timeframe to avoid commercial disputes.
Notably, at present this requirement applies only to NSDL. CDSL has not introduced a similar obligation, which may lead parties to structure transactions through CDSL to avoid the additional consent step, resulting in an uneven regulatory landscape across the two depositories until harmonisation is achieved.
Transaction parties should take proactive steps to manage the impact of this requirement. Share purchase agreements and shareholders’ agreements should include an express obligation on the company to issue the consent letter within a specified period. The consent process should be initiated early, particularly in time-sensitive transactions. Parties should also evaluate whether structuring the transfer through NSDL or CDSL is more appropriate given prevailing compliance burdens and deal timelines. It remains important to monitor whether CDSL adopts a similar framework or whether MCA or RBI issues further clarifications. The absence of prescribed timelines and the current regulatory asymmetry between the two depositories are the most significant practical challenges that deal parties must navigate.
The NSDL circular represents an important alignment of depository procedures with the statutory requirements governing private limited companies under the Companies Act, 2013. By implementing a mechanism to verify company consent before processing share transfers, NSDL has addressed a significant regulatory gap. While this change enhances corporate governance and enforces existing legal restrictions at the depository level, it also introduces a procedural layer that must be carefully managed in private market transactions. For dealmakers in the M&A, private equity, and venture capital space, the message is clear: build in time, prepare documentation carefully, and contractually require timely cooperation from the company.
