My mother left some physical certificates of shares. What can I do

When a close family member dies while holding a physical Share Certificate, it causes some immediate complications. You may circumvent these challenges by following a logical strategy while transferring a Physical Certificate. This is the strategy you must take.

When SEBI made the transmission of Physical Certificate shares (before dematerialization) illegal in January 2019, there was much concern about what would happen to inherited shares. It is important to remember, however, that inheriting shares upon the death of a family member is not a transfer of shares, but rather a transmission of a Share Certificate. The transfer is a voluntary action, but the transmission is a legal requirement. The 2019 SEBI decision only limits the actual transfer of shares. Physical Certificate share transfers are still allowed.

Even if a close relative, such as your parents, dies while holding a physical Share Certificate, it causes some immediate problems. You can overcome these challenges if you take a thorough approach. This is how you would proceed if your mother died with genuine share certificates in her name.

What if she’d have nominated you for the Physical Certificate?

In this case, the technique is rather simple. To transfer shares, you must file an application with the appropriate registrar. Proof of nomination in your favour, as well as a copy of your mother’s death certificate, are required to accompany the application. Once these papers have been validated by the registrars of the firms where Share Certificates are stored, they will undertake the transmission of shares in your name.

Once the Physical Certificate shares are transferred to your name, you can either keep them in Physical Certificate form or dematerialize them and keep them in your demat account. If you just intend to maintain the shares, you can do so in physical form. However, if you wish to sell the shares, dematerialization is required. In fact, even if you do not intend to sell the shares right away, it is preferable to dematerialize them so that you may monetize them even if you do not sell them. In such a situation, a simpler way is to use transmission-cum-demat, or TCD, in which dematerialization occurs concurrently with the transmission.

You must guarantee that the nominated name and the name in your demat account are the same, which simplifies the procedure. Otherwise, you can form a new demat account simply to receive the shares transferred and then transfer them to your main demat account through an off-market transfer. Your mum may have made many nominations at times. In that instance, the transmission will occur into a joint account, and you will be allowed to transfer the shares in accordance with your internal agreement.

What if your mother dies without being nominated?

This may make the operation more difficult and time-consuming. In the absence of a nomination, the transfer will take place through the legal process in compliance with SEBI LODR legislation. In this case, the application for transfer must be accompanied by the death certificate as well as a legal affidavit signed by a magistrate naming the legal nominees for the shares. The method involves legal review and takes longer than a simple nomination.

In this scenario, the process must be accurately explained. In the absence of a share nomination, the validity of a will, succession certificate, or letter of administration will suffice. If neither of these circumstances is satisfied, the operation of the legislation kicks in. To begin, if the Share Certificate is held in joint name, the co-owner becomes an immediate co-owner. This is a straightforward procedure that involves only an application to the registrar and a copy of the death certificate. All legal heirs must sign a duty stamped affidavit if your mother is a sole holder who died without a will or nomination.

Is it possible to get sole ownership if there are several legal heirs?

If all of the legal heirs agree that you should have exclusive ownership of the shares, the law respects that. In such instances, you must consider two options. To begin, if the value of the shares is less than Rs2 lakhs, a simple NOC in your favour from all legal heirs is adequate. A family settlement agreement with an indemnity bond is also acceptable.

However, if the value of the shares exceeds Rs2 lakhs, all legal heirs must get together and sign a declaration affidavit recognising you as the lawful claimant of the shares. That should be sufficient for you to initiate transmission.

Consider these thumb rules

Here are three simple thumb guidelines to remember in such situations. To begin, even if you do not intend to sell the shares right away, always guarantee that they are dematerialized rather being held in Physical Certificate form. Second, nomination/probate will is usually recommended to avoid future legal issues, especially in the case of substantial value possessions. Finally, be sure that all of these facts are documented, registered, and available to legal successors. It has the potential to fix a million issues.

Instructions for crediting transferred Physical Certificate shares in Demat mode:

1. Following the processing of the re-lodged transfer request, the RTA shall hold the physical Share Certificate and notify the investor (transferee) of the transfer’s execution through a Letter of Confirmation. This letter shall be submitted through Registered / Speed Post or via email with a digitally signed letter and shall, among other things, include information of endorsement, shares, and investor folio (needed on Demat request form) as accessible on physical shares.
2. Within 90 days of receiving the Letter of Confirmation, the investor must submit the Demat request to the Depository Participant (DP) along with the Letter of Confirmation. At the conclusion of the 60-day period following the issuance of the Letter of Confirmation, RTA shall provide a reminder advising the investor to submit the Demat request as described above.
3. The Depository Participant will process the Demat Request based on the Document of Confirmation, as this letter confirms RTA’s possession of a Physical Certificate on the investor’s behalf.
4. Annexure – A has a proposed format for the Letter of Confirmation.
5. In the event of shares that are required to be locked-in pursuant to SEBI Circular SEBI/HO/MIRSD/DOS3/CIR/P/2018/139, dated November 06, 2018, the RTA should, in addition to approving/confirming the Demat request, incorporate/inform the Depository of the lock-in and its term. Such shares will be locked in Demat mode for 6 months from the date of transfer registration.
6. If the investor does not submit a Demat request within 90 days of the date of the Letter of Confirmation, the shares will be credited to the Company’s Suspense Escrow Demat Account.