Dematerialisation and the Depository System in India: A Legal and Market-Structure Analysis

Abstract

Dematerialisation converted the Indian securities market from a paper-based ownership register into an electronic book-entry system, and it is the reform that made every later settlement improvement possible. This paper examines the legal architecture and market consequences of that conversion. Using a doctrinal method supported by secondary market data, it analyses the Depositories Act, 1996, the relevant provisions of the Companies Act, 2013, and the SEBI (Depositories and Participants) Regulations, 2018, and traces how the two-depository structure of NSDL and CDSL operates through registered depository participants. Four findings emerge. The statutory shift of title into book-entry form under Sections 4 and 10 of the Depositories Act removed the certificate as the source of title and eliminated the categories of dispute that afflicted the paper regime. The compression of the settlement cycle from T+5 in 2001 to mandatory T+1 in January 2023 and optional T+0 from March 2024 was contingent on dematerialisation rather than merely coincident with it. Demat accounts grew from about 4.1 crore in March 2020 to roughly 23.15 crore by June 2026. The residual problems of the system are behavioural and cyber-operational rather than documentary. India’s depository law is therefore infrastructurally complete but regulatorily unfinished.