Many Indian families, including investors in Jammu & Kashmir, still hold old physical share certificates in cupboards, files or lockers. These certificates may represent genuine ownership, but today’s share market and company-law system is mainly based on demat holdings—electronic records of shares held through NSDL or CDSL.
The key message for investors is simple: physical shares should be regularised and dematerialised well before any sale, transfer, inheritance claim or dispute arises.
Physical share vs demat
A physical share is a paper certificate issued by a company showing that a person owns a certain number of shares. It usually contains the company name, shareholder name, folio number, certificate number and number of shares.
A demat account holds the same shares electronically. It works much like a bank account, but instead of money it holds shares, bonds, ETFs, mutual funds and other securities.
Main benefits of demat
– Protects shares from loss, theft, fire and physical damage
– Reduces chances of forgery and fake certificates
– Makes sale and transfer easier
– Helps in receiving bonus shares, rights shares, dividends and buyback benefits
– Provides a clear electronic ownership trail
– Makes pledging shares for loans or margin easier
– Reduces disputes over transfer and ownership
Why listed shares need demat
For listed companies, shares are traded electronically on stock exchanges. Since 1 April 2019, normal transfer of listed shares in physical form has largely stopped.
An investor may still hold an old physical certificate of a listed company, but if the investor wants to sell or transfer it, the shares generally need to be converted into demat first.
For example, if a family holds old physical shares of a listed company such as a bank, PSU or blue-chip company, those shares cannot normally be sold through a broker until they are credited into a demat account.
There are limited exceptions, such as transmission after death of a shareholder or transposition of names among existing joint holders. But for regular sale and transfer, demat is the practical requirement.
Why unlisted shares also need demat
Many people think demat applies only to NSE- or BSE-listed companies. This is incorrect.
The Ministry of Corporate Affairs has expanded demat requirements to cover many unlisted public companies and private companies as well. The aim is to improve transparency, reduce fraud, and maintain a clean electronic record of ownership.
Main legal framework
– Depositories Act, 1996: Created the legal framework for electronic holding of securities in India
– Section 29, Companies Act, 2013: Provides the basis for prescribed companies to issue securities in dematerialised form
– Section 56, Companies Act, 2013: Governs transfer and transmission of securities
– Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014: Applies to unlisted public companies
– Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014: Applies to private companies other than small companies
Rule 9A: unlisted public companies
Rule 9A applies to an unlisted public company
. Such a company is generally required to:
– Issue new securities only in demat form
– Facilitate dematerialisation of old physical shares
– Obtain an ISIN for each type of security
– Establish connectivity with NSDL or CDSL
– Ensure promoters, directors and key managerial personnel hold shares in demat form before rights issues, bonus issues or buybacks
Most importantly, if a shareholder wants to transfer shares of a covered unlisted public company, the shares should first be dematerialised.
Rule 9B: private companies
Rule 9B was introduced for private companies other than small companies. Covered private companies are required to issue securities in demat form and facilitate dematerialisation of old physical shareholdings.
This is especially relevant for:
– Family-run companies
– Start-ups
– Pre-IPO companies
– Growing private businesses
– Companies raising funds from investors
– Companies with multiple shareholders
A private company cannot avoid demat compliance merely because it is not listed on NSE or BSE. Whether Rule 9B applies depends on its legal classification, including whether it qualifies as a small company.
Why government made demat necessary
The move toward demat is meant to protect investors and improve corporate governance.
Physical certificates can be forged, duplicated, lost or transferred through questionable documents. In unlisted companies, paper transfers can also create disputes over who truly owns the shares.
Demat provides:
– A clear electronic record of ownership
– Better verification of share transfers
– Reduced scope for backdated transfer documents
– Better disclosure of shareholding patterns
– Easier due diligence by investors, banks and buyers
– Stronger protection against fake or duplicate share certificates
However, investors should remember that demat confirms electronic ownership; it does not guarantee that a company is profitable or that its shares will rise in value.
What is net worth?
For unlisted-share investors, company *net worth* is an important financial indicator.
In simple terms:
A company with positive net worth may have value for shareholders, but net worth alone is not enough to decide whether to invest.
Before buying unlisted shares, an investor should also check:
– Revenue and profit growth
– Cash flow from operations
– Debt and contingent liabilities
– Promoter background and governance
– Auditor’s report
– Pending litigation
– Shareholding pattern
– Liquidity of shares
– Likelihood of an IPO, if claimed
– Restrictions on transfer of shares
A company may have high net worth but poor cash flow, high debt or weak governance. Therefore, unlisted shares should never be bought only on the basis of rumours that “IPO is coming soon.”
Name mismatch: the biggest problem in old shares
A major difficulty in dematerialising old shares is name mismatch.
The name on the share certificate may differ from PAN, Aadhaar, bank details or the demat account because of:
– Initials on old certificates but full name on PAN
– Minor spelling differences
– Urdu-English spelling variations
– Maiden name on certificate and married name on current records
– Change of surname
– Missing middle name or surname
– Different order of joint holders
– Old signature not matching present signature
– Death of the original shareholder
For example, a certificate may show “Mohd. Irshad Mushtaq,” while PAN may show “Mohammad Irshad Mushtaq.” Such a difference may be resolved with proper identity proof if the registrar is satisfied that both names belong to the same person.
Minor and major name mismatch
A minor mismatch may include initials, abbreviation or small spelling differences. Supporting documents such as PAN, Aadhaar, passport or driving licence may help establish identity.
A major mismatch may include a changed surname, name after marriage, legally changed name or completely different name. In such cases, the investor may need:
– Marriage certificate
– Gazette notification
– Affidavit
– Indemnity bond, if asked
– PAN and Aadhaar linking the old and new name
– Other proof accepted by the company’s Registrar and Transfer Agent
Joint holders and transposition
A common issue occurs when the names on the physical certificate and demat account are the same, but their order is different.
For example:
– Certificate: A is first holder, B is second holder
– Demat account: B is first holder, A is second holder
This may be resolved through *transposition*, which changes the order of existing joint holders without changing ownership.
However, a single-holder physical certificate cannot be directly converted into a joint demat account. Likewise, a new person cannot be added through transposition.
Death of shareholder
If the sole shareholder has died, the legal heirs or nominee must first complete the *transmission* process. This is different from an ordinary transfer.
If one joint holder has died, the surviving holders may need to request deletion of the deceased holder’s name or complete the prescribed transmission process before dematerialisation.
Important documents may include:
– Death certificate
– Nomination documents
– Succession certificate, probate or legal-heir documents where required
– PAN and KYC of claimants
– Original share certificates
Forms and KYC requirements
For physical shareholdings, investors may need to use SEBI-prescribed service forms, depending on the issue.
ISR-1: PAN, KYC, address, bank details and contact information update
ISR-2: Signature verification through banker confirmation
ISR-3: Opting out of nomination
ISR-4: Certain service requests, including replacement-related requests
Before submitting shares for demat, investors should ensure that PAN, address, mobile number, email, bank details, nomination and signature are properly updated wherever applicable.
What Kashmir investors should do immediately
A Kashmir investor holding old physical or unlisted shares should not wait until there is an urgent sale, death claim or dispute. The following steps should be taken early:
1. Check whether the company is listed, unlisted public, private, merged, delisted or struck off
2. Verify the company’s status and financial filings on the MCA portal
3. Confirm whether the company has an ISIN and demat facility
4. Open a demat account in the same name and holding pattern as the share certificate
5. Compare the certificate name with PAN, Aadhaar, bank record and demat account
6. Resolve name mismatch, signature mismatch or joint-holder order issues
7. Complete transmission if the original holder has died
8. Submit the Dematerialisation Request Form and original certificates through a registered Depository Participant
9. Avoid informal paper transfers, local agents or unverified buyers
10. Confirm that shares are actually credited into the demat account before treating the process as complete
Conclusion
Physical shares may still be valuable, but paper certificates are no longer the safest or most practical way to hold company ownership. India’s legal and market system has moved toward demat for listed shares, unlisted public companies and many private companies.
For investors, especially those holding old family shares in Kashmir, the real task is not merely converting paper into electronic form. It is to correct the complete ownership record: name, PAN, signature, bank details, joint-holder sequence, nomination and succession documents.
The safest investor approach is clear: verify the company, update all KYC records, resolve name-related problems, open the correct demat account, and dematerialise shares before any transfer, sale, inheritance claim or legal dispute arises.
About the author:
Irshad Mushtaq is the founder of M I Securities, Munawar abad, Srinagar, and an AMFI‑registered mutual fund distributor (ARN‑47504) since 2004. He works as a personal finance columnist and financial educator, focusing on bringing simple, disciplined investing and market awareness to investors in Kashmir and beyond. He can be reached at [email protected], Contact No : 9906518342
