SEBI LODR Second Amendment 2026: Physical Shares Are Frozen Unless Dematerialised — Regulation 40(7) and the 4 February 2027 Window

SEBI LODR Second Amendment 2026: Your Physical Shares Are Frozen Unless You Dematerialise Them Before 4 February 2027

Last updated: 28 July 2026 · By CS Sapna Malpani, Practising Company Secretary, Bangalore

A promoter walked into a listed-company AGM last month holding a share certificate his father bought in 1997, expecting to hand it to his son. He cannot. Since the SEBI LODR Second Amendment 2026 took effect on 10 July 2026, that certificate cannot be transferred, and it cannot even be passed on by transmission, until it is dematerialised. SEBI has quietly closed the last door for physical listed shares, and it has attached a hard deadline: the special re-lodgement window shuts on 4 February 2027. Miss it, and a paper certificate becomes a wall hanging.

The problem: paper shares that no one can move

India moved to compulsory dematerialisation for the transfer of listed securities on 1 April 2019. From that date, an investor could no longer register a fresh transfer of shares held on paper; the shares had to be in demat form first. What survived was a set of exceptions and grey areas, transmission on death, transposition of joint-holding order, and a large pile of transfer deeds that had been lodged before the cut-off and then rejected on a technicality. Families kept certificates in lockers assuming they could sort it out later.

The SEBI LODR Second Amendment 2026 removes that comfort. By reworking Regulation 40 and deleting Clause C of Schedule VII, SEBI has made the procedure for transfer and transmission something it can specify and tighten by circular, and the current position is demat-only for transfer, transmission and transposition. For the listed company, this is a Regulation 40 compliance duty enforced through its Registrar and Transfer Agent (RTA). For the shareholder, it means a physical certificate is now a dead instrument until converted. The cost of ignoring it is real: shares that cannot be sold in a rising market, cannot be pledged for a loan, and cannot pass cleanly to heirs.

The clock: three dates that decide everything

What changed on 10 July 2026

The amendment is short, and that is exactly why it is easy to miss. It does not read like a dramatic rule. It reads like housekeeping, and the effect is anything but. Here is what moved.

In plain terms, SEBI took the rulebook for moving listed shares out of the regulations and into circulars it can revise whenever it wants, and it used that flexibility to make demat the only accepted form for every kind of movement of shares. According to SCC Online’s note on the amendment, the change gives the regulator “flexibility to update the framework without a formal amendment” each time. That is convenient for SEBI and a warning for every company still carrying physical folios on its register.

Why this is a company problem, not just an investor problem

It is tempting for a listed company to treat this as the shareholder’s headache. It is not. Regulation 40 places the obligation on the listed entity to process transfers and transmissions correctly, and the RTA acts on the company’s behalf. If the company’s register still shows physical holders, every one of them is a future complaint, a SCORES ticket, or an audit qualification waiting to happen. A shareholder who cannot transmit inherited shares will write to the company first, then to SEBI.

The enforcement teeth are familiar to any secretarial team. Under the SEBI Act, Section 15A(b) sets a penalty of ₹1 lakh for each day a required filing or compliance default continues, capped at ₹1 crore per default. The Securities Contracts (Regulation) Act carries a similar band of ₹1 lakh to ₹1 crore for breach of listing conditions. On top of the statutory penalty, the stock exchanges impose per-day fines under the standard operating procedure and can freeze promoter holdings or move a scrip to restricted trading. None of that is worth risking over a housekeeping item.

What you must do now

Six months is enough time if you start this week. Slower movers will be squeezed against the 4 February 2027 wall, when RTAs are flooded. Work through these steps in order.

The common mistake is treating the re-lodgement window as the same thing as ordinary dematerialisation. It is not. Ordinary demat of your own certificates has no deadline. The window is only for transfer deeds lodged before 1 April 2019 that were rejected, and it is that narrow category that expires on 4 February 2027. Get the two confused and you either panic over shares that were never at risk, or you sit on a rejected deed until the special route is gone.

The deeper implication

According to CS Sapna Malpani, the Second Amendment is less about paperwork and more about SEBI closing the book on paper equity for good. “Once the transfer procedure sits in a circular rather than a schedule, SEBI can tighten it whenever it wants, and every tightening so far has pushed towards demat. A company that clears its physical register now will not have to firefight the next circular.”

The forward view is worth planning for. Expect SEBI to keep shortening investor service timelines and to push the same demat-only logic into corners that still tolerate paper, such as duplicate issues and small legacy holdings. For an IPO-bound company, the message is sharper still: a single physical folio held by a founder’s relative can stall a public issue while the RTA reconciles it. The teams that win are the ones that treat the register of members as a live compliance asset, not a dusty book pulled out once a year for the annual return.

How this differs from provisions people confuse it with

Three ideas get mixed up here, and mixing them up costs time.

If you run an unlisted private company, the LODR amendment does not bind you, and your transfers still run on Form SH-4 under Section 56 of the Companies Act. The overlap that matters is planning: a private company heading for an IPO should start behaving like a listed entity on demat well before it files, because the pre-issue capital has to be fully dematerialised. See our guides on the dematerialisation of shares process and on Form SH-4 share transfer under Section 56 for the private-company side.

Sources and references

1. SEBI (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2026, dated 10 July 2026 — sebi.gov.in
2. SCC Online, “SEBI Amends LODR Regulations; Listed Entities to Now Follow SEBI-Specified Transfer and Transmission Procedures”, 16 July 2026 — scconline.com
3. MMJC, “SEBI Notifies LODR (Amendment) Regulations, 2026 – Restructuring the HVDLE Framework and Investor Services” — mmjc.in
4. SEBI circular dated 30 January 2026, special window for re-lodgement of transfer requests of physical shares (5 Feb 2026 to 4 Feb 2027) — sebi.gov.in
5. LODR Regulation 40 (transfer or transmission of securities), Companies Act Integrated Ready Reckoner — ca2013.com
6. SEBI Act, 1992, Section 15A(b) (penalty for failure to comply) — sebi.gov.in

Frequently asked questions