Almost a year earlier, in October 2021, Pramod Rao wrote a white paper with the Association of Registered Investment Advisors (ARIA) on “Making Succession Smoother and Simpler” (Read: How To Make Nomination and Succession Frictionless). In the foreword extolling the detailed paper, well-known banker KV Kamath had this to say: “All that this needs is a short and coordinated effort of say six months, from all the parties involved, and if required, facilitated by the Regulators who could consider modifying the regulations to enable the institutions to use these new approaches.”
Two years later, we have many well-intentioned proposals, new rules from the Securities & Exchange Board of India (SEBI), a new claims portal from the Reserve Bank of India (RBI), the promise of simplification after a public consultation by the investor education and protection fund (IEPF) and unsurprising silence from the public provident fund (PPF) and other bodies.
On the positive side, finance minister Nirmala Sitharaman urged banks to launch a 100-day drive to refund unclaimed deposits. In July this year, Parliament was told that the effort led to Rs5,729 crore of unclaimed funds being distributed to their true owners. This still leaves over Rs35,000 crore with RBI’s Depositor Education and Awareness Fund (DEAF) and the extent of unclaimed funds remains over Rs80,000 crore (Read: Shouldn’t Regulators Be Accountable for Returning Rs82,000 Crore of Unclaimed Money To Savers?). RBI has also launched a centralised portal called UDGAM (unclaimed deposits – gateway to access information) which allows people to search for unclaimed deposits. However, it has data from only seven banks so far and we have no feedback about its effectiveness (https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56216).
This means, contrary to Mr Kamath’s hope, nothing will push regulators to ensure quick, coordinated action—not even an apex court order—barring one situation. Let us look at how little has happened, despite Pramod Rao’s ‘brilliant paper’ (Mr Kamath’s words) on the nomination and succession process. For starters, Mr Rao, author of this paper, who was general counsel at ICICI Bank, joined SEBI as executive director in July 2022. This means that the regulator now has in-house knowledge and information on how to do things right and it has, indeed, led to some practical thinking and simplification of the transmission process for shares. But SEBI has also threatened to freeze mutual fund (MF) folios for want of mandatory nomination or an opt-out declaration. These smack of handing out corporal punishment, because ‘it is for your good’.
Since all financial regulators now sit on one another’s boards, making use of Mr Rao’s study for a short, coordinated effort ought to have been easier; but there is no indication of this happening. Mr Rao’s recommendations are not all workable and some need tweaking; but, instead of a coordinated approach towards a uniform approach, each regulator is going ahead and making its changes.
Lack of Coordination
Even on a simple issue like nomination, there is no uniformity in rules or transmission processes. Banks permit only a single nominee per account, even when MFs, insurers, PPF, and even the realty regulator, permit multiple, successive, and proportional nominations with some variations. Then there is the continued lack of uniformity between SEBI’s new rules issued in 2022 and those of the IEPF under the ministry of corporate affairs. An investment adviser tells us how IEPF and SEBI have widely divergent rules on the transmission and issuance of duplicate shares. SEBI has relaxed requirements; but it does not help unless IEPF is in sync. For instance, he says, MCA requires a newspaper advertisement to be issued when the value of shares is over Rs10,000, while SEBI needs it only when the value exceeds Rs5 lakh. MCA requires a succession certificate when the value of shares is over Rs2 lakh, while SEBI mandates it only when the value is over Rs5 lakh. Similarly, for the issue of duplicate shares to be issued, MCA needs a police report regardless of the value of shares, while SEBI does not mandate a police report, if the value is below Rs5 lakh. A little coordination between regulators at any of their board meetings should sort this out; but it hasn’t happened automatically.
Confusion over SEBI’s Diktat
SEBI has recently amended rules (SEBI Amends Rules To Ease Securities Transmission Procedure) which simplify the process of transmission of securities, and has mandated that MF investors should mention nominees in a prescribed manner or specifically opt out of it through a declaration.
As investment advisers have pointed out, a simple nomination process has been weaponised and rendered impractical by asking investors to get photographs and signatures of nominees. This is an absurd demand. The reality of each household and its internal relationships are vastly different and it is not always prudent or safe to identify and declare nominees in advance. Over the years, Moneylife Foundation has come across real-life cases when beneficiaries of a Will, when informed about the contents, erupt in anger against their parents because of perceived injustice between siblings. If MF investors do not follow this nomination process or provide a declaration opting out of nomination, they will have their assets frozen. No democratic country can freeze the hard-earned, tax-paid assets of its citizens; but Indian regulators allow this with impunity.
If all this isn’t bad enough, CAMS, a key market infrastructure institution (MII) has uploaded a form that demands ‘proof of relationship’ with the nominee as per the form below! It is inconceivable why a regulator or an intermediary would demand a ‘relationship’ with a nominee. After all, what prevents an investor from nominating an unrelated, needy person, so long as basic identity details (name and address) are mentioned? Joint holders of MFs and those with very old investments are struggling to meet SEBI requirements with no help from the regulator in ironing out their issues.
The threat of freezing of accounts has been deferred from 30th September to 31st December. Hopefully, SEBI will use the next three months to ensure that MIIs, registrars and transfer agents (RTAs) implement SEBI’s elaborate rules and templates in letter and spirit. Consider these examples of how RTAs act as a law unto themselves.
Akash Panday (name changed) discovered that his late father’s demat account did not mention a nominee. The family obtained a succession certificate, in the name of his mother and provided the necessary no-objection certificates from the remaining heirs; but, to their surprise, it wasn’t good enough for Angel Broking which was the depository participant (DP). The DP’s first objection was that the succession certificate mentioned the face value of shares (which is the correct thing to do) rather than market value (which changes every day). It then demanded notarised copies of all documents submitted to the court, although scanned documents were submitted. In effect, the DP is making its own rules and even has the temerity to re-verify a court order. The grieving heirs are made to run from pillar to post and SEBI’s grievance system failed to help.
In another case, Krishnan (name changed) writes about his struggles with IDBI Bank to claim Rs50,000 lying in a savings account belonging to his deceased parents. The Bank refuses to transfer the money since it is linked to a demat account which shows that shares of Choksi Tubes were not withdrawn.Mr Krishnan pointed out that Choksi Tubes was delisted and not only were the shares returned but they were rematerialised and he holds the physical shares. The Bank refused to accept this or to close the account and release the money.
We have several other cases of RTAs sitting on judgement on court orders or SEBI’s online grievance acting like a mindless post-office and summary closure of complaints. Many have simply given up after several years of struggle since the process is a punishment. Their money eventually ends up in the Rs80,000 crore of funds impounded by various regulators.
Probate’s Problems
Another big bugbear in the transmission process is the need for a Will to get a probate from a court in the presidency cities of Mumbai and Chennai and the state of Bengal. The ARIA paper notes that it takes eight to ten months (and a fat fee) to obtain probate in uncontested Wills and around six to nine years if it is contested—often longer.
Isn’t it time to standardise on a safe and easy option?
Readers may recall that the need for a common centralised platform across financial sector regulators has now been repeatedly endorsed by independent entities. Mr Rao’s white paper suggests a simple, common form for nominations, an online facility to make changes, and uniform rules on specific, successive and proportional nominations across the financial sector which will also have centralised reporting of death and permanent incapacitation.
In May this year, the SC-appointed expert committee investigating the manipulation of Adani group stocks, strangely, decided to segue into the issue of unclaimed funds and generously endorsed my white paper on the need for a Central Unclaimed Property Authority (CUPA) and the PIL “to bring sharp focus to the area of unclaimed properties such as securities, dividends and bank deposits belonging to deceased investors.” (Read:SC Committee on Adani Endorses Creation of Central Unclaimed Unclaimed Property Authority Suggested by Moneylife Foundation).
This mess will continue and, probably, even get worse. Only if the prime minister’s office decides that ‘reuniting ordinary people with their rightful money’ is a priority, before the forthcoming general elections, things will move at lightning speed. Otherwise, we the hapless citizens will have to be satisfied with decades of small incremental changes by each financial regulator.
Note: Moneylife Foundation is attempting to re-examine issues from scratch and gather public feedback through a survey (Link: https://t.co/8oEljGde7r ). Please fill up this survey and share the link with those who have experienced issues with transmission.
I shifted address and all Reliance shares got transferred to IEPF. I am trying to file the IEPF 5 for the last 5 years and hoping someone with sense will look at the form and fix it. They require my death certificate Tobe uploaded before I can proceed to next page.
The government babu is of the 'pot dukhi' variety. They can't bear to see someone having more than what they have. So, they devise rules and processes that are designed to narrow this difference. Once some money goes in to IEPF, after a few years, they will swipe it out and no one will know. Clearly, a big scam that is carefully planned
Sucheta ji, Thanks for again raising the issues pertaining to transmission and nomination. Please note that MCA requires Succession over Rs. 5 lakhs not 2. Same was amended 2 years ago. Further, as per Indian Succession Act, a Succession Certificate will be granted on the market value of securities as on date of filing of the petition and not the face value of shares. Regards,
Ankit Garg
Smart brains ,crooks are working hard to take advantage of loopholes in the system , so Banks / Dps and other (Housing Society) authorities are playing safe in Transmission process--
Reading of this article/blogpost creates what havoc can happen to a hapless investor/depositor as if he has committed a crime by opening a bank account/DP account.
When will we simplify all these procedures and improve our practices.
You mention that some RTA agents ask for the photograph and proof of relationship of the nominee. I have made nominations in various mutual funds and demat accounts. However, no one asked for the photograph or signature of the nominee. Likewise, no one asked for the proof of relationship.In all cases, the nomination could be completed online and no physical form was submitted.
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Ankit Garg
When will we simplify all these procedures and improve our practices.