The move, aimed at ensuring compliance with the Articles of Association and Companies Act, is being viewed as a double-edged sword — enhancing governance but likely causing delays and adding procedural burden.
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SHAILESH ANDRADE
Off-market share transfers in private limited companies will now require prior written consent from the company, as per a new directive from NSDL. The move, aimed at ensuring compliance with the Articles of Association and Companies Act, is being viewed as a double-edged sword — enhancing governance but likely causing delays and adding procedural burden.
As per the new norms, off-market transfers of dematerialised shares in private companies will now require a “consent letter” from the company, signed by the company secretary, managing director, or an authorised official, stating that the transaction complies with the Articles of Association (AOA) and the Companies Act, 2013. This is in addition to the existing Delivery Instruction Slip (DIS) and applicable stamp duty.
While the move is aimed at ensuring transfers are not executed in violation of internal company rules, investors and companies are now grappling with the added compliance load and uncertainty around timelines, said experts.
Timeline uncertainty
“Without a legally defined timeline for companies to issue such letters, companies could unintentionally stall transfers which may result in delay in timelines for closing such transfers,” Pallavi Puri, Partner at DMD Advocates said.
The lack of a fixed turnaround time is a recurring concern. Ifrazunnisa Khan, counsel at Initium Legal Services, said, “Any procedural delays by the company may impact and hinder valid share transfers between shareholders.” She recommended that NSDL consider amending the rule to prescribe clear timelines for approval.
While the change is aligned with the fundamental principles of private limited company as per the Companies Act 2013, Rohit Jain, Managing Partner at Singhania & Co said, “this may also give opportunity to companies to block share transfers in case of conflicts.”
Higher compliance
Investors will have to adhere to increased diligence and governance as they must ensure the company has board approval and corporate compliance checks. Similarly, private companies face additional compliance requiring the company to provide approvals for a transaction between two private parties, experts said.
Though the process is now more tedious, it could reduce legal disputes post-transaction for investors. “This additional layer of compliance will only lead to transparency and strengthening of their transaction, coming at the cost of a delay in completion of the transfer,” said Mahaveer Singh Amaravat, an advocate at the Rajasthan High Court. “…the scope of nullifying the transfer by the company is brought to zero after securing a prior declaration.”
On the other hand, private companies might look at it as an additional compliance burden involving costs and man-power to manage the added documentation, Amaravat said.
This is also seen as a boost towards higher corporate governance both from an investor and company perspective, and will require companies to have in place a process for vetting and issuing confirmation letters, Puri said.
Published on June 24, 2025