Transmission and Nomination — what happens when a holder dies

Where this chapter sits

Chapter 6 carries 5% of the paper. It deals with one of the few parts of a DP's work where the client cannot come to the counter — so the documentation rules are exact, and the exam tests them exactly.

The single most examined number in this chapter is ₹15 lakh. The second is ten nominees.

6.1 Transmission of securities

The word 'transmission' means devolution (transfer) of title to securities, for example, in case of death of individual, lunacy, bankruptcy, winding-up (in case of corporate entity) etc.

Note that death is only the leading example. Lunacy, bankruptcy and winding-up all cause title to devolve, and all count as transmission.

The person on whom the securities devolve has to prove his entitlement to claim the securities by submitting appropriate documents and seek transmission. If the securities are held in the depository system (electronic form), the documents have to be submitted to the DP.

Why physical holding is so much worse. If the securities are held in physical form, the documents have to be sent to the company for effecting transmission. If the deceased shareholder had holdings in several companies, to effect transmission of securities, the relevant documents must be sent to each of the companies, alongwith the securities.

Legal heirs have to follow-up with each of the companies in order to get the transmission effected before the book closure, if they wish to avail of the benefits accruing through such securities.

In the depository system, such problems are mitigated as the securities are held as account balances in the electronic form. The process of transmission through a depository is simplified and investor friendly and the legal heir to the title interacts only with one entity i.e., his DP.

One entity instead of twenty. That is the whole advantage, and it is the chapter's opening argument for dematerialisation.

Operational note: at NSDL, processing of Transmission request should be processed through 'Transfer of Holding' module only where the target account is in NSDL.

What cannot be transmitted immediately

The securities which are encumbered (i.e. Pledged, earmarked, etc.) will not be transferred out of the account and will remain in the deceased BO account till such time as the encumbrance is released or the obligation (in case of earmarking) is met.

Similarly, securities of ISINs that are 'Inactive' on account of pending corporate actions like 'Merger, Demerger, Scheme of Arrangement, Split, Consolidation etc. or ISINs which are 'Frozen for debits and/or credits' due to regulatory restraints like pending listing of the company with the Exchanges pursuant to an Initial Public Offer (IPO) or Scheme of arrangement etc, will not be transferred out of the account.

In such cases, the account will reflect a "TO-BE-CLOSED" status.

But the claim is not lost. At a later date, when the ISINs which are 'Frozen for debits and/or credits' are activated or the corporate actions pertaining to the 'Inactive' ISINs are processed and the securities are transferred to a new/resulting ISIN in the BO's account, the DP may process the transfer of the said securities to the account of the claimant/survivor/nominee/legal heir as the case may be on the basis of the Transmission Request Form duly filled, signed and submitted. The same procedure applies for account closure also.

CDSL offers more. CDSL also has the facility of 'Account transfer' and "Transmission-one to one" module, whereby all securities including those which are under 'Inactive or Lock-in status' and balances which are under Pending Demat/Remat/Destat/Restat will also be transferred to target demat account along with the free securities.

On such a transfer, the source Demat Request No [DRN]/Remat Request Nos [RRN] will be cancelled and remarks column of the respective DRN/RRN will be updated with corresponding new DRNs/RRNs. New Demat/Remat/Destat/Restat will be generated in the target BO account and remarks column will carry details of the old DRNs/RRNs.

6.2 Nomination for securities

The Companies Act 2013 provides for nomination in respect of shares, debentures, etc. Under the provisions, a shareholder, a debenture-holder, a bondholder can nominate one person(s), in whom the shares or debentures or bond or deposits would vest, in the event of original investor's death.

The facility can be availed of by any person whether resident Indian or a non-resident Indian investor.

But there is a critical difference between the Act and the depository. Companies Act 2013 and rules thereunder provides the account holder to nominate only one person as a nominee.

Investors holding securities in dematerialised form have the option of nominating 10 persons in the account, who would be entitled to receive securities outstanding in his/her name in the event of their death.

One under the Companies Act; ten in demat. That contrast is heavily examined.

When it can be done: nomination facility can be availed at the time of opening the depository account itself or subsequently during the lifetime of the Account holder. There is a separate prescribed form for nomination under depository segment.

And it is not permanent: nomination can also be changed at will by resubmitting the nomination details in the prescribed form.

The DP's role: the DP has to capture and update the nominee details submitted by the account holder in the depository system. In the event of death of the account holder, the securities lying to the credit of the account holder in the demat account may be transmitted to the nominee's account after the DP verifies the identity of the nominee.

Who may and may not nominate

Nomination shall be mandatory for single holding only. The requirement of nomination shall be optional for jointly held accounts.

In a demat account which is held jointly, all the holders should sign the nomination form.

Non-individuals including society, trust, body corporate, Hindu Undivided Family (HUF), holder of power of attorney cannot nominate.

A minor can nominate through a guardian. A minor can also be appointed as a nominee represented by a guardian.

Power of Attorney (POA) Holder(s) of the investor cannot nominate.

Read those together and the principle is clear — nomination is a personal act of disposition, so only a natural person may do it, and only for himself.

Percentages

The Client(s) may make a nomination of his/their account in favour of any person(s), up to ten persons by filing the nomination form specifying the percentage for distribution of securities in case of death of the account holder.

In the case of joint accounts, all the joint holder accounts shall be required to affix their signatures.

Such nomination shall be conclusive evidence of the Client(s) disposition in respect of all the securities in the account for which nomination has been made.

In case the Client(s) appoints more than one person, maximum up to ten persons, as nominees, the Client must specify the percentage of share for each nominee which must total up to hundred percent.

And the default: in case the percentage of share is not provided, allocation of securities amongst the nominees shall be considered as equal.

Nominee acting for an incapacitated investor

The investors having single holding/account shall have the option to:

a) empower, any one of the nominees (excluding minor nominee) to operate the investor's account, if the investor is physically incapacitated, but still has the capacity to contract b) specify either the percentage or absolute value of assets in the account that can be encashed by such nominee c) change such mandate any number of times without any restriction

What the DP must do:

a) The participant upon receipt of intimation on behalf of such investor shall send a responsible officer to visit the incapacitated investor in-person. The request of the nominee of the incapacitated investor shall be accompanied with medical certificate indicating the reason for inability to affix signature by the investor and its tenure.

b) This officer shall first hand ascertain the investor's capacity to contract (i.e. to exclude investors in ventilator, coma or unconscious). Depending on the nature and degree of incapacitation, this officer shall obtain a thumb or toe impression or 'a mark', as the case may be, on the written request for transacting in the account/folio of the incapacitated investor, in the presence of an independent witness.

c) Further, the officer shall record his/her name, signature and suitable remarks to the effect that "Thumb impression/toe impression/mark affixed in my presence" on the written request of the client.

d) Any encashment by such nominee shall be credited only to the bank account linked to the account of the investor.

e) The participant shall not allow any service request, including change in bank account, email address, mobile number etc. by such nominee.

The last two are the safeguards that make the facility safe. Money can only go to the investor's own bank account, and the nominee cannot change where that money goes.

6.3.1 Transmission where there IS a nomination

A nomination, substitution shall be valid only if:

• It is submitted to the Participant by the rightful Client(s). The nomination form has to be signed by all holders. A POA holder cannot nominate
• It is in the prescribed format (format is given by the depository to the participant)
• It is duly signed by Client(s)
• It is properly signed and witnessed
• Signature of the Client(s) tally with the specimen signature records
• The details of the securities entered in the nomination forms match those in the records of the Participant — though CDSL Nomination form does not have provision for mentioning securities. Nomination is applicable to entire holding
• Recording of the share of securities for each such nominee in terms of percentage which must total to 100 percent. At the time of transmission in favour of such nominees, the DP shall divide all the securities at ISIN level in the same proportion as recorded at the time of nomination
• The photograph of the Nominee is annexed to the nomination form in case of NSDL
• The Nominee has signed the nomination form and guardian in case of the nominee being a minor in case of NSDL

And the CDSL difference: as per CDSL Operating instructions, nominee's photograph, signature, or in case of minor, the guardian's signature is not required.

The claim

Upon the death of the sole holder or the death of all the joint holders, as the case may be, the nominee(s) shall request the DP in writing along with an original death certificate or a copy of the death certificate duly attested by the nominees or by a Public Notary or by a Gazetted Officer and self-attested copy of the Permanent Account Number (PAN) card of the nominee(s) issued by the Income Tax Department.

And the nominee needs an account of his own: if the Nominee does not have an account with the Depository, the Nominee shall be required to open an account with any Depository. Where he has one elsewhere, a Client Master Report is submitted.

Splitting between multiple nominees

In case of multiple nominees in the account, the Participant shall distribute the securities to the nominees as per percentage specified by the Account holder at an ISIN level in the proportion of share indicated at the time of nomination.

And the indivisible remainder rule: in case the number of securities are not exactly divisible in the specified proportion in respect of particular ISIN, the Participant shall divide the securities at the ISIN level to the extent, the securities are divisible and remaining indivisible securities, if any, shall be transmitted to the nominee whose name is recorded first.

The short document list

For transmission of assets to the registered nominee(s), the participant shall require only the following:

(a) Self-attested copy of Death Certificate of the deceased investor (b) Due completion, updating or reaffirming of the KYC of nominee/s (c) Due discharge from the creditors if there are subsisting credit facilities secured by a duly created pledge

Three items. That is the whole benefit of having nominated.

And afterwards: regulated entities shall facilitate/extend co-operation to transfer assets from the nominee(s) to the legal heir(s) of an investor, as and when approached by either party. A nominee receives the securities; he does not necessarily own them, and the framework helps pass them onward.

6.3.2 Transmission where there is NO nomination

The legal heir(s) or claimants of the deceased account holder have to submit a request, in the prescribed form duly signed by them to the DP for transmitting the balances lying in the BO account of the deceased to their BO account(s).

The documents:

1. Original or a copy of the death certificate, duly attested by the legal heir(s)/claimant(s) subject to verification with the original or copy of the death certificate duly attested by a Gazetted officer or Notary Public

2. Self-attested copy of the Permanent Account Number (PAN) card of the legal heirs/claimant(s)

3. A copy of the Succession Certificate or Probate of Will or Will or Letter of Administration or court decree or Legal Heirship Certificate (or its equivalent), as may be applicable in terms of Indian Succession Act, 1925

4. In case the BO account of the claimant is not with the Participant, copy of Client Master Report of the BO account of the claimant

Where a Will is submitted

In cases where a copy of Will is submitted... the same shall be accompanied with following documents from the claimant (appropriate beneficiary of the will) to whom the securities are transmitted, and the copy of Will shall be duly attested by a Notary Public or by a Gazetted Officer provided that market value of securities held in each of the account of the deceased as on the date of application for transmission not exceeding ₹15,00,000:

a) Letter of Indemnity made on appropriate non judicial stamp paper; and b) An Affidavit made on appropriate non judicial stamp paper

Where a Legal Heirship Certificate is submitted

Legal Heirship Certificate (or equivalent certificate) shall be accompanied with:

a) a notarized indemnity bond from the legal heir(s)/claimant(s) to whom the securities are transmitted, in the prescribed format

b) No Objection from all non-claimants (remaining legal heirs), stating that they have relinquished their rights to the claim for transmission of securities, duly attested by a notary public or by a gazetted officer, in the prescribed format

The ₹15 lakh simplified route

In case the legal heir(s)/claimant(s) express their inability to produce either of the documents mentioned above and if the market value of the securities held in each of the accounts of the deceased BO as on the date of application for transmission is not more than Rs. 15 lakhs, or such other amount as may be specified by the depository or SEBI from time to time, DP may process the request for transmission of securities on the basis of the following documents:

a. Request for transmission in the prescribed format

b. Original or copy of the death certificate duly attested by the legal heir(s)/claimant(s) subject to verification with the original or copy of the death certificate duly attested by a Notary Public or by a Gazetted Officer

c. Self-attested copy of PAN Card of nominee, issued by the Income Tax Department

d. Any one or more of the following:

• i) Letter of Indemnity made on appropriate non judicial stamp paper
• ii) An Affidavit made on appropriate non judicial stamp paper
• iii) No Objection Certificate(s) from all the legal heir(s) who do not object to such transmission
• iv) As an alternate a No Objection Certificate from all legal heir(s)/claimant(s) who do not object to such transmission, a copy of Family Settlement Deed duly attested by a Notary Public or by a Gazetted Officer, provided that the Family Settlement Deed clearly vest the securities in favour of the person seeking transmission in his/her name and vesting of securities in his/her name is not contingent upon any other onerous conditions
• v) In case the BO account of the claimant is not with the Participant, copy of Client Master Report

And the Family Settlement Deed can serve more than one heir: if the division of securities as per the Family Settlement Deed is amongst more than one person, then Family Settlement Deed can be considered as an agreement amongst the legal heirs for transmission of securities to each legal heir applying for transmission.

Note where the ₹15 lakh threshold is measured — the market value of the securities held in each of the accounts of the deceased BO as on the date of application for transmission. It is measured per account, at the date of application.

6.3.3 Transmission where securities are held JOINTLY

In case of death of one of the Clients in a joint account, the surviving Client(s) shall request the DP to transmit the balances lying in the Client account to the account of the surviving Client(s).

The surviving Client(s) shall make an application to the DP in the specified form given by the Depository, along with original or a copy of the death certificate duly notarised/attested by a gazette officer.

Route one — a new account. The surviving joint holder(s) will have to open a new account with the DP in their name(s). If the surviving client(s) wish to open a new account with the same DP, then the DP will open the new account in the name(s) of the surviving member(s), in the same order as in the original account, on the basis of the existing documents already in the possession of the DP, provided that the said documents meet the prevailing requirements for opening an account.

The checklist:

• The surviving holder(s) to have a separate account with any DP, Client Master Report of such accounts
• Ensure all surviving holder(s) sign the transmission form
• Ensure that transmission form is accompanied with an original or copy of notarised/attested death certificate by a Gazetted officer or Notary Public
• Verify signature of the surviving Client(s)

Route two — delete the deceased's name. In addition to the existing option of opening new account, the surviving account holders continue the existing account by deleting the name of deceased account holder(s) from the account.

The surviving account holders shall make an application to the DP in the form specified for deletion of deceased account holder(s) along with a copy of death certificate duly attested by a Notary Public or by a Gazetted Officer. The DP shall verify the documents submitted and the signature of surviving Client(s). The DP after being fully satisfied on all aspects, shall then effect the deletion of name.

And there is a deadline on this easier route: request for deletion of name of the BO should be submitted within 1 year i.e. 365 days, if the request is received after 1 year, DP's are required to carry out the transmission process as per the earlier procedure of opening a new account by the surviving holders.

One year. Miss it, and the survivors must open a new account instead.

And the documentation for a surviving joint holder is deliberately minimal: with regards to transfer to legal heirs from nominees, in case of joint holdings, the participant shall not seek any documentation including related to KYC, indemnities or undertakings from the surviving joint holder, except copy of the Death Certificate of the deceased.

6.3.4 Death of the Karta of an HUF

Upon death of the Karta of a Hindu Undivided Family (HUF), the surviving member(s) of the HUF may appoint the eldest surviving member of the HUF as the new Karta of the HUF or a coparcener who is appointed as Karta by an agreement reached amongst all the existing coparceners of the HUF.

Two routes to a new Karta: the eldest surviving member by default, or any coparcener by agreement.

For change of name of Karta in the account of HUF to the new Karta in place of the deceased Karta, the surviving members through the new Karta shall make a joint application to the Depository Participant in the format specified along with the following documents:

i) Original death certificate or Copy of the death certificate of the deceased Karta, subject to verification with the original or copy of the death certificate duly attested by surviving coparceners/members duly certified by a notary public or by a Gazetted Officer

ii) Copy of PAN, Proof of Identity, Proof of Address and a photograph of new Karta of HUF along with his original ink signed specimen signature

iii) A declaration of the list of surviving members of HUF in the prescribed form (FORM 40), not objecting the appointment of the new Karta along with name, date of birth, gender and relationship with Karta of all members of HUF

And the crucial point on the HUF itself: as per CDSL Operating Instructions, HUF does not come to an end in the event of death of the Karta, only new Karta will be appointed.

Partition

Partial partition: in case partial partition of the HUF, if desired by one or more members, the Karta shall transfer the securities to the said members who seek partition and HUF account shall continue if the remaining coparceners/members desire to continue the HUF. The accounts of such members shall be treated as their individual accounts.

Total partition: in case HUF goes into partition, the securities shall be divided amongst all the members in the manner specified by the applicant. The surviving members shall furnish to the Participant the details of the beneficial owner accounts of the individual members in order to have the securities distributed to their respective accounts.

In both cases: the surviving members shall furnish to the Participant the intimation of partial or total partition accompanied by a signed letter mentioning the names of the members and their confirmation of partial or total partition having taken place.

The DP's duty: the Participant shall ensure that the documents submitted by the surviving members of the HUF or the new Karta are in order and shall then effect change in name of Karta or transfer of securities to the account of surviving members in the event the HUF goes into partial or total partition.

And on total partition: if a transfer of securities is effected to the surviving members due to total partition, the Participant shall close the account held in the name of the HUF after distribution of securities to the coparceners/members as the case may be.

In CDSL, the account survives: it may be noted that in CDSL the previous account need not be closed and the same account can continue. In the event of death of the Karta of HUF, the name of the deceased Karta in the Beneficial Owner (BO) account shall be replaced by the new Karta appointed by the members of the HUF.

The new Karta in CDSL submits the new list of members, original or a copy of the death certificate of the deceased Karta duly notarized/attested by Gazetted Officer and a no objection from the surviving members of the HUF for him/her to act as a Karta of the HUF. The new Karta shall record change in signature to operate the account.

In CDSL, a total or partial partition shall be recognized only if a claim to that effect is made by one or more coparceners.

And where the family cannot agree: if the transfer cannot be amicably settled, the family members can go to a court and transfer of shares can then be based on the court direction.

6.3.5 The centralized KRA mechanism

SEBI with effect from January 1, 2024, has introduced a centralized mechanism for reporting and verification in case of the demise of an investor, thereby smoothening the transmission process.

Listed companies wanting to provide the beneficial access to such a centralized mechanism to their investors holding securities in physical form, are eligible to establish connectivity with KRA through their RTAs.

Who may notify: notifier may be a joint account holder(s) or nominee(s) or legal representative or family member.

Step 1 — verification. The notifier may inform the 'concerned intermediary' of the demise of the investor and shall provide the death certificate along with the PAN. The intermediary must verify the death certificate within one day of its receipt — either online viz. the website of the issuing Government authority or offline: OSV ('Original Seen and Verified') process by intermediary.

And: record and retain self-certified copy of proof of identity, relationship with deceased and contact details of the notifier.

Step 2 — updating the KRA, on the same day of verification. The intermediary shall submit a 'KYC modification request' to the KRA that "information on death of investor received; death certificate verified" and also upload the relevant documents, and block all debit transactions in the account/folios of the deceased investor.

A carve-out for joint accounts: for joint accounts, the specified mode of operation should be adhered to, and if the account is operated on Either OR Survivor, or Anyone or Survivor, etc. (i.e. modes other than joint mode), the account operation in such mode shall continue.

Step 3 — on "Blocked Permanently" notification from the KRA, intermediaries shall immediately block all debit transactions and intimate the notifier/nominee, within 5 days about the procedure for transmission, provide the transmission request form and the list of documents required for the transmission. In case of joint account/s, the intermediary shall intimate the surviving joint account holder(s).

Accounts flagged "On Hold". Where a death has been reported but the certificate is unavailable, the account is flagged "On Hold", and any transaction request shall allow the transaction only after conducting additional due diligence as may be appropriate, including through video call with the investor or In-Person Verification (IPV) which serves to establish that the investor is alive.

False reports. In case where the information about demise of the investor is proven to be incorrect when the intermediary is able to establish contact with the concerned investor, the intermediary shall submit a 'KYC modification request' in the KRA system as, "intimation of death of investor is false" and also upload a report of its additional due diligence to the KRA. This shall be done on the same day in order to avoid any inconvenience to the investor.

And the KRA acts equally fast: the KRA shall in turn, revert the status of the KYC to 'Clear or Validated' and issue this update to all linked intermediaries, all on the same day.

Reporting to SEBI: all intermediaries who have account or folios of investors whose status has been updated as deceased by the KRA, shall submit the data w.r.t. intimation of transmission and its outcome thereof, to SEBI, in the format as may be prescribed.