In July 2018, market regulator-SEBI issued regulations (effective December 2018) pertaining to mandatory dematerialization for transfer of securities. So, while a shareholder can continue to hold shares in physical form, the same cannot be sold.
The balance sheet of most listed companies show that close to 95 per cent of their shareholders hold stocks in dematerialized form. These include shares lying in the suspense account (companies face situations when post-demise, the shareholders are in litigation mode). Apart from these, shares transferred to the Investor Education and Protection Fund (IEPF) are also kept in demat form. These relate to shares which represent unclaimed dividends for over seven years; hence, the dividends as well as reciprocating shares get transferred to the IEPF (maintained in demat form).
Dematerialisation, an uphill task
Live case A: Madhabi Manohar Mondal (1st Joint Holder) held shares in physical form in a diversified company, which was listed in 1942, with her daughter Mohua M Mondal (MMM- maiden name) as 2nd Joint Holder.
After marriage, MMM had a demat account in her new name Mohua Paresh Vyas. She applied to the RTA for change in name and attached the notarised marriage certificate and also her KYC with her name, accompanied by an affidavit for change in name due to marriage and bank attestation of her signature and photo as well (as per IBA format) along with self-attested PAN and Aadhaar Card, Bank cancelled cheque (with name printed) of her mother - 1st Joint holder.
As the name of her mother on the share certificate was Smt. M Mondal, which was not aligned to her KYC, RTA insisted on issuance of a gazette notification for name change and said it would not be accept the request for dematerialisation. Also, there was no marriage certificate in pre-independence days.
The RTA was adamant on the issuance of Gazette Notification for name change and the communication exchange lasted four months with the Company Secretary or Chairman Stake Holders Committee. Neither acknowledged or replied to any letters. A legal opinion from a High Court Lawyer that it does not fall within the ambit of name change qualifying for Gazette Notification made the RTA agree.
It remains a mystery as to how an RTA (of high repute) could rely on a legal opinion to safeguard compliance and was unable to appreciate that adoption of standard name format commenced during issuance of PAN in 1972 and gained momentum with Aadhaar Card (in 2009). The RTA stated informally that such things are pointed out by SEBI during their audits and they are penalised. However, SEBI hasn’t provided guidance notes for the protection of the Investors. While RTA was only trying to curb any possible fraud, but never was fundamentally confident of the legal aspects as well. Hence does it mean that RTAs are ill-equipped to address situations?
Live case B: Anilbhai Dayachand Parikh (AP), solely holds shares in an MNC which has an in-house RTA department. Anilbhai has been receiving dividends since last 35 years. While he had only 3 certificates of 100 shares each, aggregating 300 shares in his possession, the shares against his folio (post bonus) stood at 1300, which also meant that he had not received/ lost other certificates. He lodged a police complaint, and with an FIR copy, released an advertisement in the English and vernacular daily in city of his domicile and also city of registered office of the MNC. He then submitted to the MNC shares department – application for issue of shares and attached self-attested KYC, Bank attested signature verification, cancelled cheque and newspaper advertisement, franked and notorised Indemnity Bond and Affidavit for change in signature as per format provided by MNC.
Still the application for issuance of new certificates was rejected as MNC wanted Anilbhai to furnish a Bank Guarantee for the value of the shares for 2 years. A draconian provision indeed, proudly displayed on the website of the company. The MNC as well as the Stakeholders Committee Chairman and other Board members have not bothered and appropriate to review this clause in the present context and hence shareholders who are part owners are harassed for recovering / monetising their own ownership.(Names have been changed to protect identities)