The recent Fyle Technologies adjudication order highlights how dematerialisation has moved beyond a routine company-secretarial requirement to become an important element of transaction readiness. The matter involved physical share transfers approved despite the applicable dematerialisation requirement, demonstrating how deal urgency can create compliance, governance and closing risks for companies, investors and directors.
Key Takeaways:
- Dematerialisation is a transaction-readiness issue, not merely a post-closing formality. Physical transfers cannot be treated as a temporary bridge where the law requires dematerialisation before transfer.
- PE and VC transactions should address demat compliance early, including checking the company’s ISIN, seller holdings, depository records, cap table and any pending or rejected dematerialisation requests.
- For M&A transactions, dematerialisation can become a title and closing issue, potentially requiring corrective action, specific indemnities, escrow arrangements or closing conditions where historical physical transfers create concerns.
- AIF investments carry an additional SEBI compliance layer, with investments made by an AIF on or after July 1, 2025 generally required to be held in dematerialised form, subject to specified exceptions.
- Companies should build dematerialisation into ongoing governance processes, including maintaining an active ISIN, reconciling statutory and depository records, and ensuring securities can be issued or transferred through the legally required mechanism before a transaction begins.
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