What Is Rematerialisation of Shares? The Opt-Out Route

Rematerialisation of shares is the statutory route back to paper. A holder who no longer wants a security sitting in a depository tells the depository to take it out, and the issuer prints a certificate in the holder's own name. It exists because the Depositories Act was written as an opt-in system, so the law had to keep an exit open. This page sets out how that exit works, what the clocks are, and what a rematerialised holding can and cannot do afterwards.

How does rematerialisation of shares work?

Section 14 of the Depositories Act, 1996 sets out three steps and nothing more:

1. The holder informs the depository. A beneficial owner who seeks to opt out of a depository in respect of any security informs the depository, which in practice means a rematerialisation request submitted through the depository participant that holds the account.
2. The depository updates its records and tells the issuer. On receipt of that intimation the depository makes the appropriate entries in its records and informs the issuer.
3. The issuer issues the certificate within thirty days. Every issuer shall, within thirty days of receiving the intimation from the depository and on fulfilment of the specified conditions and payment of the specified fees, issue the certificate of securities to the beneficial owner or the transferee.

The depository participant has its own service clock in front of that. SEBI's Master Circular for Depositories lists the expected timelines for basic services, and rematerialisation of securities carries the same seven day processing expectation as dematerialisation.

What is the difference between dematerialisation and rematerialisation?

They move the same security in opposite directions, and they are not symmetric in effect.

The dematerialisation process and its name-matching checks are covered separately.

Why would anyone rematerialise?

Two reasons show up in the rules rather than in preference.

The first is account closure. SEBI's standard Rights and Obligations of Beneficial Owner and Depository Participant says that when a demat account is closed, the beneficial owner has to specify whether the balances are transferred to another demat account or rematerialised, and the participant initiates that within thirty days. A holder closing an account with no replacement account has rematerialisation as the only remaining option.

The second is that the depository route is voluntary at the point of subscription. Section 8 of the Depositories Act gives every person subscribing to securities the option to receive a certificate or to hold with a depository, and a holder who later wants out is exercising the same choice in reverse.

What a rematerialised holding cannot do

It cannot be sold in the ordinary market. Paragraph 4.64.1 of SEBI's Master Circular for Depositories records that in terms of Regulation 40 of the LODR Regulations, transfer of securities held in physical mode is not permitted. A rematerialised certificate is a valid holding with full economic rights, but the moment the holder wants to sell, it has to be dematerialised again, and that re-entry runs through the name-matching database of physical holders as on 31 March 2019.

It also drops off the electronic register that most disclosure is built on. Once a holding is out of the depository, it stops being part of the beneficial owner records the depository maintains under section 11 of the Act, which is the register issuers draw on when they strike a shareholding pattern as of a quarter end. The holding is still counted in the company's total capital, but it is now counted from the register of members rather than from the depository feed. The quarterly reconciliation of share capital audit is the filing that ties those two counts back together.

What stays the same

Ownership. Section 10(3) of the Depositories Act keeps the beneficial owner entitled to all the rights and benefits and subject to all the liabilities in respect of securities held by a depository, and once the security leaves the depository the holder becomes the registered owner outright. Dividends, votes and corporate action entitlements do not lapse in either direction. What changes is the register the entitlement is read from, and how quickly the holding can move.

So rematerialisation of shares is a legal right with a short clock and a real cost: thirty days to get the certificate, and no route to sell until it goes back in.

Flock reports the filings themselves, each one dated and linked to its source. What any disclosure means for your money is your call to make. Not investment advice.