Blitz Bureau
NEW DELHI: In a move set to reshape the landscape of unlisted securities market, the National Securities Depository Ltd (NSDL) has revised its by-laws, granting companies the power to restrict the transfer, pledging, and hypothecation of their unlisted shares.
The new norms, outlined in a circular recently, aim to introduce greater governance and control in a market segment that has seen a surge in activity and valuation changes.
NSDL authorises companies to halt unwanted trading
The revised rules allow companies to formally request NSDL to impose these restrictions. After verifying the request, the depository can grant approval, effectively giving companies a powerful new tool to manage their shareholding. This regulatory update comes in response to heightened trading in the unlisted market, often involving multiple changes of hands and significant fluctuations in valuations.
Industry insiders and legal experts have welcomed the move, highlighting its potential to curb litigation and enhance issuer control. According to legal experts, these new norms will enable companies to enforce share transfer restrictions more effectively, thereby reducing legal risks.
Rishabh Gandhi, founder of Rishabh Gandhi and Advocates, stated that the changes will “curb unauthorised transfers, enhance issuer control, and align depository practices with statutory intent.”
The issue gained prominence particularly with companies that had a large number of public shareholders before their Initial Public Offerings (IPOs), often due to ESOP conversions and secondary market trades. The new framework modernises the depository system by aligning it with corporate law, providing unlisted companies with better compliance tools and fostering robust governance.
Crucially, the amended norms also shift the responsibility for these restrictions to the companies themselves, thereby indemnifying the NSDL from any actions by third parties.
This move is expected to impact retail investors and high-net-worth individuals who frequently engage in trading unlisted shares, as companies can now legally halt the sale of shares by existing shareholders.