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Why having a nominee is not relevant for a jointly held demat account

The need to have registered nominee(s) is relevant only when all owners (sole or joint) are deceased

November 25, 2021 / 11:12 AM IST
Representative image

Representative image

The two depositories, NSDL and CDSL, have laid down procedures of how investments in a demat account get transmitted.

On demise of either the sole holder of a demat account or any of the joint holders, the account becomes non-operational. This actually happens only on the DP (depository participant) receiving intimation of the demise, which necessitates the transmission process. For transmission, a new demat account needs to be opened – by the nominee(s) in case of demise of the sole holder and by other surviving joint holder(s) on demise of a joint holder. If the sole holder had not registered a nomination, then the new account can be opened only after the process of heirship confirmation or as per the Will or on decision of competent authority after applying relevant succession laws.

Thus the surviving joint holder(s), upon opening of a new demat account, transmit all the investments to the new demat account, without any inclusion/ reference to registered nominee(s). The joint holders have the option to appoint new nominee(s) in the new demat account. The case under reference clarifies dilution of status of a registered nominee.

A case study

Aneesh Ahuja, Parul Dave and Charmy Futardo were joint holders in a demat account and their respective children were registered nominees. When Dave passed away, Aneesh Ahuja and Charmy Futardo opened a new demat account and all investments were transmitted to the new demat account. The Will of Dave bequeathed all assets (including her share in investments under the demat account) to her daughter Simraan (a nominee in above demat account).

The concerned DP did not heed of the request of claim under Will, but followed the process and opened the new account of Ahuja and Futardo, without recognising the Will which bequeathed Simraan as sole beneficiary though being the nominee. The residual and surviving joint holders were also not obliged to include the name as no such provision exists in the operating manuals. However, the surviving joint holders were kind and morally supportive and awaited the Probate order of the Will, post which they shared the entitlement with Simraan.

Nominee details lack rationale and relevance

Take another case. Rajvi Dalmia had a sole demat account with her three daughters Nisha, Dhriti and Tarushi as (equal share) registered nominees. NSDL Compliance Manual for DPs Dec 2017 states that if client(s) appoints more than one person as nominees, there is need to specify percentage of share for each nominee aggregating to 100 percent, if not provided, it shall be considered as equal.

On demise of Dalmia, as per her Will, all 3 daughters were bequeath equally (in value terms). A new account jointly held by Nisha, Dhriti and Tarushi was opened and investments transmitted basis submission of Death Certificate of Dalmia. The role of percentage share amongst nominees was irrelevant during account opening. Thus, the need to have registered nominee(s) is relevant only when all owners (Sole or Joint) are deceased.

NSDL circular no NSDL/POLICY/2017/0064 (October 23, 2017), states “the facility for multiple nominations has been introduced.” NSDL Compliance Manual for DPs Dec 2017, “on demise of the account holder, transmission is required to be carried out in favour of the multiple nominees.”  “In case of multiple nominees in the account, DP shall divide the securities at an ISIN level in proportion of share indicated at the time of nomination. In case the number of securities are not exactly divisible in the specified proportion in respect of particular ISIN, the DP 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 in the form submitted to receive such indivisible securities.”

As per CDSL’s Compliance Manual Sept 2018 “Nominee (each nominee in case of multiple nomination) shall be the sole holder of the account. The DP shall ensure that the said nominee does not have any joint holders in this new account.”

If all nominees open a new demat account jointly, then transmission is smooth and percentage share is irrelevant. If the Will(s) of the deceased sole holder (or all joint holders if all are deceased) has bequeathed to other than nominees then also, the envisaged role of DP to distribute and split securities amongst the nominees seems out of place.

In summation, if a demat account is held singly, then registering a nominee is a must, while in case of joint holders, chances that all joint holders will die simultaneous seem highly remote. Even if that happens, distribution of securities by the DP and divisibility are too farfetched.

Rajat Dutta is Founder & Initiator, Inheritance Needs Services
first published: Nov 25, 2021 11:12 am