Modern India Needs To Change Outdated Transmission Processes, Probate & Threat of Coercive Action
The death of a loved one is a universally painful experience. In India, the confusion around transmission of assets renders the process of claiming one’s inheritance even more painful, especially when the deceased is the bread-winner of a family who has not made a Will or been careful about listing nominees.
 
On the one hand, technology and economic growth have increased work-related migration across income strata; on the other, transmission of assets remains a challenge when dealing with banks, financial institutions and government departments.
 
Standard operating processes (SOPs) are absent, and processes are manifold and, often, harrowing. This is evident in the investor education and protection fund (IEPF) under the ministry of corporate affairs (MCA), which impounds corporate benefits, shares and debentures that remain unclaimed after seven years. The Reserve Bank of India’s (RBI) portal to trace unclaimed bank deposits also has a mixed response about ease of use. The Securities and Exchange Board of India (SEBI) has gone further than other regulators in May 2023 by issuing a comprehensive master circular with detailed guidelines on transmission and transfer of shares. In 2015, the law commission recommended a simplification of inheritance procedures; but little has changed.
 
Mandatory Probates
A peculiar legal requirement of Wills applies only to those residing or owning property in former British Presidency towns—Mumbai, Chennai and Kolkata. If a person has made a Will or left an immovable property here, it is mandatory to have the Will probated by a court. This means that the Will is certified by a court. Probate involves a substantial court fee and time, even if uncontested. Additionally, heirs incur legal fees for completion.
 
Why this unfair burden on people in these three cities? Well, because the Indian Succession Act dates back to 1925 and the British law has remained unchanged after 76 years, even though we overhauled the Indian Penal Code (which was also 150 years old) and also have launched new legislation for goods and services tax (GST) under the slogan – ‘one nation one tax’.
 
Court fees vary within these cities. In Mumbai, it could cost up to Rs75,000; in Kolkata, the fee is capped at Rs50,000; and, in Chennai, it is Rs25,000. A probate takes eight to ten months, even when there are no disputes.
 
So why haven't people pushed for dropping it? The answer is threefold: individuals face this process only once or twice in their lives; legal professionals have no incentive to push for reforms that only benefit their clients; and, until 20 years ago, few Indians wrote Wills, with property divided based on family agreements or their respective succession laws.
 
It is only in the past two decades that a significant number of people acquired substantial self-earned assets, necessitating careful distribution through documented Wills. This has, to an extent, prompted financial regulators and the government to improve the transmission process.
 
Regulator’s Actions
SEBI has made strides in smoothening the transmission process. In May 2022, SEBI issued a master circular to eliminate the capricious demands by depository participants (DPs) and registrar and transfer agents (RTAs) to transfer securities.
 
In October 2023, SEBI introduced a central mechanism for reporting demise to streamline the transmission process, establishing clear guidelines for listed companies, registrars, transfer agents, mutual funds, exchanges, depositories and DPs (https://www.sebi.gov.in/legal/circulars/oct-2023/centralized-mechanism-for-reporting-the-demise-of-an-investor-through-kras_77534.html). Effective January 2024, this central reporting mechanism will put ‘on hold’ all transactions in a deceased person’s account until transmission to the legal heirs, preventing misuse of the shares by intermediaries or unauthorised persons.
 
However, in July 2021, SEBI issued a controversial circular stipulating that trading and demat accounts that did not have a nominee would be ‘frozen’. It required investors to submit know-your-customer (KYC )details of the nominee. It is unclear how a regulator can freeze an individual’s self-earned assets without their consent.
 
Perhaps that is why SEBI has repeatedly extended the deadline for initiating coercive action. But the threat has evidently worked since nearly 90% of over 1,100 persons who participated in a survey by Moneylife Foundation have complied with the nomination requirement. Another 10% intend to comply, but a small 1% are clear that they do not plan to list a nominee. In June 2022, SEBI permitted mutual fund investors to list a nominee or specifically ‘opt-out’ via a formal declaration. (https://www.surveymonkey.com/r/asset_transmission)
 
Although nominations aid quick transmission of assets, it cannot be a mandatory requirement and take away individual choice merely to simplify processes.
 
RBI delegated the issuance of SOPs to the Indian Banks Association which released a procedure in 2016; this has been ineffective, while RBI has merely issued multiple circulars asking banks to treat customers better.
 
After my public interest litigation (PIL) in the Supreme Court (Read: SC Issues Notice on Plea By Sucheta Dalal That Information on Unclaimed Amounts Lying in Dormant Accounts Be Made Publicly Available on a Centralised Platform), RBI has created a central database to improve the process of tracking and recovering unclaimed deposits (Read: RBI Launches UDGAM - Centralised Web Portal for Searching Unclaimed Deposits Across Banks). Nevertheless, a large sum of Rs1 lakh crore or more continues to lie in inoperative accounts (Read: Over Rs1 Lakh Crore Lying in Inoperative Bank Accounts on Way To Becoming Unclaimed Funds).
 
MCA requires companies to transfer shares and corporate benefits which are lying unclaimed for seven years to IEPF. Its online process for tracing and claiming funds remains challenging for individuals or their legal heirs.
 
Many Changes Required
India's wealth distribution is highly skewed. However, everyone agrees that the growing middle-to-upper-middle-class population, estimated at over 300mn (million), has self-earned wealth that they should be able to distribute smoothly as desired. Unfortunately, responses to Moneylife Foundation’s survey indicated that we have a long way to go in ensuring smooth transmission because institutions that deliberately delay the handover of assets to rightful legal heirs to face cost or penalty.
 
Here are some egregious examples of the difficulties people have faced:
  • A Will and a probate do not guarantee smooth transmission. In one case, the heirs waited six years for the completion of a probate. Once done, the bank decided it would distribute assets equally among all because the probate wasn't well construed.
  • Another bank would not accept a Will and refused to provide access to Rs32 lakh to the widow even if her two daughters provided a release and indemnity. It insisted that the Will should be probated.
  • A common complaint is that officials dealing with transmission lack knowledge; there are no SOPs or a list of documents to be submitted. Often, bank managers or persons in charge come up with demands such as indemnities, sureties, multiple affidavits and no-objection certificates (NOCs) from siblings, etc. In one case, a notarised probate was rejected by an uninformed official who would accept only a succession certificate.
  • Another sought KYC documents and an Aadhaar of a deceased mother even after a death certificate was provided; worse, the deceased was a long-time customer of the bank and had received her pension in the branch for many years. Only the threat of legal action ended the harassment.
  • A public sector bank manager asked a nominee to submit a statement of assets and liabilities to determine if he was worthy of access to the locker.
  • A public sector insurer refused to release death benefits to a nominee until the untraceable agent signed the documents. Eventually, the heirs were coerced to buy new policies to get their inheritance.
  • An RTA demanded indemnities and sureties despite the submission of a registered Will. Mumbai-based RTAs were also known to demand a probated Will in all cases, even though it is not mandatory in all but three cities. SEBI’s new rules ought to end the transmission harassment with capital market products.
  • At a time when banks offer multiple services (trading and depository accounts, mutual funds, insurance and credit cards) linked to a single unique customer identity number (UIC), it should be mandatory to provide nominees/heirs with a complete snapshot of the deceased person’s financial dealings with the bank. This does not happen.
  • Foreign nationals claiming assets of deceased Indian parents have the hardest time. They are forced to make repeated trips to India and pay hefty legal fees to complete the formalities since officials handling transmission are ignorant about the role of executors and their duty to distribute assets.
 
Moneylife Foundation’s survey does not include fixed assets/ property, whose transmission is a bigger challenge. There is a clear need to tackle transmission through a holistic process covering all asset classes with a central database for reporting death. Similarly, people should have the right to make a Living Will outlining life support, resuscitation and organ donation preferences. But until there is a public outcry for better systems, this will remain a low-priority area for all, except the victims of a heartless system, who are deprived of their rights.
 
If you haven’t, we request you to take Moneylife Foundation’s survey, which would help us make the right suggestions to policy-makers: https://www.surveymonkey.com/r/asset_transmission
 
 
Comments
mahajan.r2016
3 weeks ago
In view of the computerised accounting systems in banks now, the RBI needs to re-examine afresh the desirability of flagging of accounts as ‘dormant’ and ‘inoperative’ by banks.
ramamanis
3 weeks ago
I appreciate the effort taken by you in ' setting right ' some of the manipulations by Banks, Legal
luminaries, and others in this delicate matter. I would like to mull over this matter for a few more time
and I will revert in this matter. Once again, thanks for the effort. Btw, my depository has been after me to make the 'nominee matter' clear for some time and I have complied.
hvkramaiya
4 weeks ago
1year after my Srn has be approved I continue to get a bland assurance from the ceoand gm of Iepfa that the Claim has been approved for payment and will be released shortly 12 reminders later the situation remains the same.Has any one received any refund from this body to date?
sashedawood
Replied to hvkramaiya comment 4 weeks ago
It took more than a year for me to get the re credit of shares in my wife’s Demat account. In another case of my friend , even getting a log in happened after he complained to PMO when he did not get response from MCA for months together. This is after he had to run for providing various documents called for by the RTA and the company which almost took as more than 2 months. There is no accountability at any level and MCA gets away with murder. It is really harrowing. But there are agencies or intermediaries who are encashing on this appalling level of inefficiency. The charges demanded by them are astronomical.
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