The Securities and Exchange Board of India (SEBI) has brought certain changes with respect to the transfer of demat shares upon the death of a person. How an investor’s equity shares got bequeathed after death to their heir so far depended on whether he/she left behind physical or dematerialised shares. As per the new amendment, the procedure for transfer of demat shares upon the death of a shareholder shall be the same as the transfer of physical shares. It is important to become familiar with the new rules.
In order to harmonize the process of transfer of shares and securities held in demat form with the process of transmission of securities in physical form, the capital market regulator SEBI has issued a circular on 4th January 2019. The circular says that from 1st April 2019 onwards, the securities held in physical form should be compulsory converted into demat form. Therefore, old investors who still have shares in physical form must learn about demat account opening procedure and open a demat account.
The transfer of physical shares was governed by SEBI’s Listing Obligations and Disclosure Requirements (LODR). On the other hand, the transfer of demat shares was governed by the rules and regulation of the depository i.e. NSDL or CDSL. With recent amendments, from 1st April 2019 onwards, dematerialisation of shares and securities held by investors shall follow the guidelines of LODR (Sixth Amendment) Regulations, 2018.
Effect and Process of Transmission of Physical Shares
With the introduction of new LODR regulations, it is important to become familiar with the new rules. When there is no nomination or will regarding the transmission of shares to a legal heir, the new regulations must be followed.
As per the new SEBI LODR regulations,
- The surviving holder shall be the holder of securities when a joint owner of physical shares is deceased.
- When the shares are held singularly by the investor then transmission of shares in such cases shall be made to the legal heirs after considering the fact that whether the investor has made a nomination or not, or there is a will, letter of administration or succession certificate.
- The nominee in such cases must apply for the transfer of shares request by submitting the death certificate of the deceased shareholder attested by a notary and fill the transmission request form.
- There are many cases when no nomination is made by the deceased shareholder but there is a will, letter of administration or succession certificate. In such cases, the LODR permits the legal heirs to transfer shares by submitting the affidavit by all the legal heirs, or by the identified legal heir if there is a probate of will or succession certificate or letter of administration. Probate of the will is a judicial process where the will is “proved” or certified by a competent court of law as the true last testament of the deceased
- When the shares are held by the deceased person singly and there is no nominee or a will and the current valuation of the shares of the company do not exceed Rs. 2 lakh. In such cases, the LODR regulations require the claimant to submit a no objection certificate from all the legal heirs along with the indemnity bond.
- When the shares are held singly by a deceased person and there is no nominee or a will and the value of shares exceed Rs. 2 lakh, then the legal heirs must register and identify themselves as the rightful claimant of the shares by submitting a signed declaration affidavit.
Process of Transmission of Dematerialized Shares
The procedure for transmission of shares held in dematerialized form as set out in the business rules of respective depositories prescribe that
- where there is no nominee, then a probate of will or succession certificate or letter of administration is required.
- If there is no nomination and in the absence of a probate of will or succession certificate or letter of administration and where the value of shares in the demat account does not exceed Rs 5 lakh, then a family settlement deed or a no objection certificate from all legal heirs in favour of the claimant together with a duly stamped affidavit is required to be furnished, in addition to an indemnity bond provider.
- But if the value of the shares in the demat account exceeds Rs 5 lakh, the claimant is required to furnish probate of will or succession certificate or letter of administration
- Bank Account, Term Deposit, Locker: Paperwork Required For Claim
- How to Nominate in Bank Account, Mutual Funds
With the recent changes in the procedure for transfer of shares on the death of an individual, it is important to open a demat account and if someone is new to the market, he must learn about demat account opening procedure to avoid problems in future.