Recovery of Shares- Overview

Before the introduction of Dematerialized form of trading, the securities were allotted in the form of paper certificates. Now since these certificates are in the physical form, there is a big chance of these security certificates getting torn, misplaced and lost. There have been instances where the person in whose name shares were registered has died and the heirs have not been able to claim the said amount. Some estimates tell us that about eighteen thousand crores of unclaimed shares have been transferred to the IEPF and along with it unclaimed dividend of twenty three hundred crores.

Taking note of such unclaimed shares that have been transferred to Investor Education and Protection Fund (IEPF), the government formed a procedure where the said investors can claim their investments back from the IEPF along with the dividends and bonus shares.

With thousands of crores of money lying unclaimed in the IEPF fund of the rightful shareholders, IEPF must make sincere efforts in order to spread awareness about the rights of the shareholders and it is the duty of the shareholders to seek professional help in claiming their rightful holdings.

What do you mean by Recovery of Shares?

Buying, selling and holding of securities in paper format have been going on for a long time before the Demat system of trading in securities became the norm. However, some of these securities never dematerialized and still exist in the physical paper format. These securities could be mutilated due to wear and tear happening over a period of time or forgotten or because of the death of the original security holder never came back into the system.

So, the process of retrieving these securities and bringing them back within the rightful possession and ownership of the security holder through the processes of transmission of shares, transfer of shares, retrieval of unclaimed dividends, bonus issues etc. is called Recovery of Shares.

Modes of Recovery of Shares

Depending on the situation of the claimant, following are the modes of recovery of shares:

1. Transmission of shares: It refers to the process of transfer of shares from the original shareholder to the claimant or legal heir by the operation of law on account of reasons such as death, insolvency, lunacy, marriage or any other statutory reason except for the reason of natural transfer. Once the process of transmission of shares takes place successfully, the claimant or the legal heir becomes not only the rightful holder of the shares but also entitled to the rights that come along with them. Following are the documents that are required for the transmission of shares:

• Application from the legal heir requesting transmission of shares
• Certified copy of Death certificate of the original shareholder
• Letter of Administration or Probate of Will or Succession certificate
• Specimen of the signature of the legal heir or successor
• Self attested copy of the PAN

2. Transfer of shares: When transfer of shares take place because of the voluntary act of the original shareholder to the transferee for a consideration, then it is called as ‘Transfer of Shares’. At the time of transfer of shares, the liability of the transferor or the original shareholder ceases to exist and gets transferred to the transferee. The instrument that is used in the transfer of shares is called the transfer deed.

Following can be instances where the transfer of shares becomes necessary:

• Wear and Tear of the share certificates: Transfer of certificates usually takes place when the shares are in physical form. When the shares have been kept in physical form, there is a very high probability that over a period of time the certificates may get torn and then it becomes very difficult to get the shares transferred.
• Misplacement of certificates: Before dematerialization of shares took place, record of every security was kept in physical certificates. Keeping this thing in mind, it is quite natural that some of the certificates might have been misplaced or lost due to shifting or in transit. This poses a big challenge in retrieving the value of the shares.
• Transfer deed not submitted: There have been numerous cases wherein the transferee has paid the due consideration for the shares but still not submitted the form to the prescribed authority. This means that the shares are still in the name of the original shareholder. In such cases submission of the said form to the authority is necessary to make the said transfer. Therefore, it requires the right expertise to execute the said task without any hassles.
• Mismatch of signature of the transferor: given the fact that the certificates were obtained long ago and considerable time has passed since then, the signatures of the transferor have also undergone certain changes and the transferor may face hurdles in getting the transfer executed because of mismatch of signatures. These instances are common but the key to overcome this hurdle lies with the experts.

3. Transfer of unclaimed dividend: Companies provide dividends to their shareholders annually on the profits that the company makes. However, when shareholders did not claim their dividends for a continuous period of seven years, then the same gets deposited in the Investor Education and Protection Fund (IEPF). It must be noted that the amount is not forfeited by SEBI rather it gets deposited in the IEPF account and the law gives the opportunity to the security holder to claim the securities back.

A number of investors have not claimed their securities because of the following reasons:

• Improper execution of the Transfer or Transmission of shares: It has been seen mostly in the cases when the securities have been in physical form and the transfer has not been done in the rightful manner or proper execution has not been done. Further in cases of Transmission of shares, execution could not take place because of improper procedure followed by the legal heir which includes fraud, unprofessional legal advice etc.
• Improper Records of the shareholders: The security holder is unable to receive the dividends on his securities is due to the fact of improper and incorrect information provided by the security holder in the records which includes incorrect name, age, address, date of birth, fathers name etc. Because of the incorrect information in the records the dividends are allocated to a separate account and the rightful security holder is deprived of his right to receive his dividend.

4. Unclaimed Bonus shares: Another less talked about category is the bonus issue of shares that is granted by the company to its existing shareholders as a bonus or additional benefit by virtue of being a shareholder of the company. The bonus issue of shares becomes an unclaimed bonus share when the rightful shareholder is unable to get the proper registration in the records either because of non-transmission, non-transfer of shares etc. When such an issue is not claimed by the shareholder for a long time, such shares get transferred to another account and the shareholder in order to retrieve them has to undergo the procedure prescribed by the statute.

Procedure of Recovery of Shares

• The claimant has to fill up the form IEPF 5 available on the website.
• All the required details in the form such as name, Aadhar details, name of the company, amount claimed and details of bank account and demat account etc. are to be filled by the claimant.
• After uploading the form, it gets processed and an SRN is generated and after clicking the pay option acknowledgement is generated without actually making any payment.
• After taking the acknowledgment, along with the copy of the claim and the indemnity bond, it is to be submitted at the IEPF Nodal Officer’s office of the company.

Mutual Funds

Even Mutual Funds fall in the same league. According to some estimates, the amount of unclaimed mutual funds investments range to the tune of 44000 crores. This is because many people invested their money in the mutual funds and then forgot about them. However, the catch here is that these investments cannot be traced from the IEPF or Ministry of Corporate Affairs but from the Mutual Fund itself.

For the purpose of recovery of shares, following are the ways by which recovery of shares is done:

• Transmission of shares by operation of law.
• Transfer of shares for consideration after executing the transfer deed.
• Claim of unclaimed dividends from Investor Education and Protection Fund.
• Retrieval of bonus issues back to the title holder.

In our opinion, it is a very good initiative taken by the MCA and SEBI to give the opportunity to the rightful shareholders to claim their funds back from Investor Education and Protection Fund. Moreover, it is the duty of the SEBI to spread awareness to the investors and security holders. However it requires great skill and experience to make the process of recovery of shares go smoothly and the rightful shareholder gets his securities.

Enterslice can give you overall advisory and assistance in the process of recovery of shares as we are a team of highly skilled & dedicated professionals. We specialize in providing legal consultancy services.