Easier share transmission rules soon

[N.Sukumar]

MUMBAI: There’s good news for lakhs of legal heirs awaiting the
transmission of shares of deceased shareholders. Market regulator Sebi
is expected to accept most of the recommendations of the group that
was formed to look into the matter. This will pave way for quick
transmission of shares and benefit those who have inherited them in
physical form.

Currently, companies follow different systems for transmission of
shares in physical form. For instance, HDFC asks its local manager in
some cases where the legal heir does not possess succession
certificate or the probated will, to carry out a verification once it
receives the application. The manager then submits a report and the
company then acts based on the recommendation. But market participants
say this can be a tedious exercise.

“The companies would have to fix a threshold limit of 200 shares or Rs
1 lakh whichever is higher for transmission of shares after submitting
the standardised documents. Companies would require an affidavit, deed
of indemnity and a no objection certificate in case there are other
legal heirs. The limit will be the basic minimum limit to be adhered
to by all listed companies. Those companies that have higher threshold
can continue with that,” said a person close to the development.

Transmission means devolution of title to shares otherwise than by
transfer, for example, devolution by death, succession, inheritance,
bankruptcy, marriage, etc. Transmission is different from ‘transfer’;
in transmission a person acquires an interest in the property by
operation of law, such as by right of inheritance or succession,
whereas, transfer is effected by act of the parties.

“In spite of the legislative intent to simplify the transmission
procedure, companies have different documentary compliances on the
part of the legal heirs of the deceased security holder. In case of
many companies, this is so time consuming and tedious that investors
do not want to follow it up if the amount involved is not very big,”
says Ashok Bakliwal, president of the Bombay Shareholder’s
Association, a Sebi-recognised association.

In transmission case, where title to shares are passed by operation of
law, the beneficiary need not carry out further formalities. A year
ago Sebi had constituted a group to address this issue and to evolve
an uniform procedure on transmission of shares.

The group had unanimously suggested suitable measures to address
issues relating to difficulties faced by investors while dealing with
transmission of securities in the physical and dematerialised mode. It
had also proposed the standardisation of these documents. “Once the
new process comes into effect, companies, depositories, recognised
investors’ associations and Sebi is expected to put awareness on the
use of nomination facility at the account opening stage itself. This
might also be made mandatory going forward,” adds Mr Bakliwal, who was
also member of the above group.

“There is a need for the depositories to encourage the use of
nomination facility in case of demat mode. It should ensure that all
its existing accounts are updated with nomination. The DPs as well as
companies would be required to ensure that the transmission cases are
dealt with in a time-bound manner,” he adds.

N.Sukumar
Research Analyst