How depository participants, banks harass legal heirs and beneficiaries looking to transmit assets

Unnecessary roadblocks by depositories and bank accounts create roadblocks that result in large sums with estates lying in limbo.

SEBI, which regulates Depositories (NSDL and CDSL), has simplified the death claim settlement process, listing document requirements for transmission under diverse scenarios. In spite of this, nominees / heirs / beneficiaries continue to be vulnerable targets, with a few depository participants and banks disregarding the notifications. Three such cases came to our attention recently.

Sharthake Dikshit (from Kolkata) died with a will bequeathing his entire wealth to his wife Umadevi Dikshit. His demat account with a leading private sector bank was in his sole name and had no nomination. A probate was awarded by the Kolkata High Court (a probate is a judicial process to examine the authenticity of a will and duly pass a probate order). Umadevi submitted an application for closure of the demat account of the deceased with a transmission request enclosing the notarised copy of the Probate and CML of her demat account. The depository participant rejected the application with a rejection memo seeking a no objection certificate from all legal heirs on non-judicial stamp paper of Rs100 or a copy of the family settlement deed executed by all legal heirs.

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Umadevi made a representation to the depository participant with a copy to NSDL and SEBI as the rejection is tantamount to challenging the decision of the competent court of jurisdiction, which undergoes a rigorous process before awarding Probate. The Depository participant and depository NSDL have not been responsive.

Passing away in a foreign land

Premlata Maheshvari, a widow (from Chennai) had a demat account in her sole name with her daughter as registered nominee with a depository participant owned/ sponsored by a public sector bank, wherein she also had a savings bank account (linked to this demat account). In 2020, during a holiday to the US, she died due to a pulmonary issue. Her death certificate was issued by The California Department of Public Health – Vital Records.

A transmission request by Saraswati Maheshvari, Premalata’s daughter, was refused on the grounds that the same needed to be apostilled by the Indian embassy, as required by NSDL. Interestingly no such stipulation exists in NSDL or under SEBI guidelines. Further an additional objection mentioned that the death certificate had no barcode, thereby disallowing online authentication. The depository participant was informed that a barcode is meant for unique identification during issuance and is starkly different from a QR Code (prevalent in Indian death certificates), which enables online authentication.

A SEBI circular dated May 18, 2022 (Clause no 6.2) categorically states that a transmission form duly signed by the nominee with the original death certificate or copy of the death certificate attested by a notary public or by a gazetted officer is a valid submission. Further the NSDL Compliance Manual for Depository Participants also endorses the same requirement. The officer concerned abstained from answering calls / emails and correspondence.

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Saraswati submitted the proof that the public sector bank (sponsor/ owner of the depository participant) had already processed the death claim on the same death certificate. The high market value of the securities and the unrealistic attitude of the official made her succumb to pressure and arrange for a new death certificate from San Diego, duly notarised by the US notary, which finally broke the deadlock. All representations made to NSDL officials and to SEBI remain unanswered even after five months.

PAN card in the name of the estate

Aspi Nousheer Panthaki (87), a bachelor, died with a will naming a priest of the Agiary (Parsi fire temple), his niece, the son-in-law of his youngest sister and his maternal cousin “jointly or severally” as executors. The term ‘‘jointly or severally’’ means that any one of them individually can be the executors. Panthaki’s will was located and the Probate was secured, with the niece as executor. (some of the others named as executors had passed on by then; one person was overseas). A PAN card application was made for the estate of Aspi Nousheer Panthaki — when a person dies, all his or her assets become a part of the estate. Hence, when there are multiple beneficiaries, only the estate (which is an artificial person) can distribute the assets seamlessly — this is a preferred structure for tax compliance.

This also means that the demat account and the bank account into which the estate’s assets, such as shares and money, would be deposited to be eventually distributed to the beneficiaries, also has to be held in the estate’s name. When Panthaki’s niece (the named executor, as per the court’s probate) approached a leading private sector bank to open a 3-in-1 account to enable wealth distribution, she got a shock. The bank refused to open a demat account as per the PAN card (the estate’s PAN card), stating that a depository account can be opened only in the name of executor, or as per NSDL confirmation.

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An application form of another leading private sector bank states that the estate account is to be treated like a Trust account and no cheque book/ debit card/ net banking facilities will be provided. And this account, once opened, must be closed within six months. That is another bizarre rule — how can wealth be distributed to legal heirs in the absence of a cheque book or internet banking or even within six months? Plus, a defined closure time can hurt if it takes longer to distribute wealth to legal heirs, especially if real estate assets need to be sold.

Coming back to Panthaki’s case, in spite of the probate, the bank has been seeking an affidavit from legal heirs that they are legitimate heirs and are required to indemnify the bank, while showing a willingness to open an account as per the PAN card. This defeats not only the sanctity of the probate but also the purpose of an estate account and distribution among multiple beneficiaries.

While a digitally enabled grievance redressal mechanism exists with depositories (NSDL and CDSL), the lack of clarity among depository participants is acting as a damper, lengthening the transmission process. It’s time SEBI reviewed the situation and took appropriate steps in the interest of investors.

India’s laws on inheritance, coupled with court procedure, are well laid out to ensure smooth transmission of assets once a person dies. However, unnecessary roadblocks by depositories and bank accounts create roadblocks that result in large sums with estates lying in limbo.

[Names have been changed to protect identities]