Sebi Closes Key Loophole, Makes Pledged Shares Non-Transferable During Lock-In

Market regulator Securities and Exchange Board of India (Sebi) introduced a new mechanism to enforce lock-in norms on pledged shares, especially for companies planning an initial public offering (IPO), by directing depositories to mark such holdings as “non-transferable” during the lock-in period.

In a circular dated April 8, Sebi said that “specified securities on which lock-in cannot be created, may be recorded as ‘non-transferable’ by Depositories for the duration of the applicable lock-in period.” The mandate follows amendments to the Sebi (Issue of Capital and Disclosure Requirements) Regulations, 2018, notified on March 21, 2026.

Fixing A Key Loophole

The new framework aims to fix a long-standing gap where pledged shares could avoid normal lock-in rules. By marking these shares as non-transferable, Sebi wants to ensure that promoters and pre-IPO shareholders cannot bypass regulations using pledging.

How The System Will Work

To implement this, depositories have introduced a detailed framework and made the required system changes to track and enforce the lock-in properly. Issuers will now have to incorporate suitable provisions in their Articles of Association, notify lenders or pledgees, and provide appropriate disclosures in offer documents.

“Depositories have made necessary changes to their systems and processes,” Sebi noted, while directing stock exchanges, depositories, merchant bankers and issuers to ensure compliance with the new framework.

Existing Rules And Challenges

Under current ICDR norms, most pre-issue shares (with some exceptions) have to remain locked-in for six months after listing. However, issues arose when such shares were already pledged before the IPO, making it difficult to enforce the lock-in properly.

What Changes Now

Under the new system, even if a pledge is invoked or released, the shares will continue to remain locked-in for the remaining period in the new holder’s account. This ensures the rules are followed consistently.

What It Means For Investors

The new framework makes IPO rules stronger by ensuring that even pledged shares cannot escape lock-in restrictions.

For investors, this means a lower risk of sudden selling after listing, as promoters or early investors won’t be able to sell shares through indirect routes.

It also brings more clarity on who holds what, especially when shares are pledged, making IPO disclosures easier to understand.