The Supreme Court-appointed expert committee investigating the volatility in Adani group stocks has endorsed the need to create a Central Unclaimed Property Authority (CUPA) “to bring sharp focus to the area of unclaimed properties such as securities, dividends and bank deposits belonging to deceased investors.”
The report says that the entire process of refunding or allowing heirs or nominees to reclaim funds or assets belonging to deceased family members 'requires an imaginative re-engineering', which would be best served by creating a CUPA, designed specifically to handle and reunite unclaimed private assets to the successors of deceased investors.”
The report says, a public interest litigation (writ petition no. 185 of 2022) on the issue of refund of unclaimed deposits, which was filed by founder-trustee of Moneylife Foundation, Sucheta Dalal, had come to their attention while they were deliberating on the issues faced by the Investor Education and Protection Fund Authority (IEPF).
“The committee is in receipt of a detailed note akin to a white paper from the petitioner Ms Sucheta Dalal on the subject of setting up a composite Central Authority for Unclaimed Property, which is set out in the Compilation of Submissions,” it says.
Upon review of this note, the committee has made the following specific recommendations:
- “First, the authorities (should) make rigorous attempts to locate rightful heirs or owners of unclaimed assets; second, when the owner is not traceable for anywhere between 7 and 10 year, the assets are transferred to a centralised fund; third, claimants do not lose the right to such funds and have access to searchable databases to track the funds and follow the process laid down to recover the money.”
- “There is a need to create a centralised, searchable database of unclaimed money and property of the general public that gets transferred to government-owned repositories such as the Depositor’s Education and Awareness Fund (“DEAF”) and IEPF on the premise that the property is not claimed by legal heirs or nominees.”
- “The core objective of the database should be to ‘reunite unclaimed property (including all financial assets) with the rightful owner’ and, towards this end, enable proven legal heirs to get a full picture of the investments and savings of the deceased and claim their money/bequest in a smooth and efficient manner.”
- “In order to be effective, a statutory central authority, backed by the appropriate legislation, must be empowered to track the rightful owner, resolve grievances and deal with security and privacy concerns.”
- “It is only when the databases are interoperable and integrated that the system would be effective. This will involve legal mandates and organisational structure, with holistic IT-based automated processes.”
- “The authority must create standard operating procedures since even within the same class of institutions (say, a bank, different managers add their own rules and demand sureties, fixed deposits, indemnity, etc) in connection with honouring claims.”
- “A simple PAN-based KYC of the nominee (non-mandatory) may be considered to make the process of identification and transfer of assets much simpler.”
- “Globally, there are different models of dealing with such funds with most of them having statutory backing. The ambit of what comprises unclaimed funds also differs widely. In the US, it also extends to royalties, unclaimed salaries, mining rights etc. in addition to stocks, bonds, bank deposits and earnings thereof.”
- “Some countries maintain a central database for unclaimed assets; others have managed to efficiently make the information available through multiple authorised agencies. In the United Kingdom, the agency operates as a public-private partnership.”
The Supreme Court had appointed an expert committee to investigate the allegations of fraud, stock market manipulation and improper use of offshore entities by the Adani group, after the explosive report from Hindenburg Research. While the apex court has recently given a deadline of 14th August to the Securities and Exchange Board of India (SEBI) for their investigation and subsequent report on the issue, the Court-appointed expert committee has released their own findings and suggestions in a comprehensive report on 19 May 2023.
The committee was tasked to provide an overall assessment of the situation, including the relevant causal factors which have led to the volatility in the securities market, to suggest measures to strengthen investor awareness and to investigate whether there had been any regulatory failure in dealing with the alleged contravention of laws pertaining to the securities market in relation to the Adani group or other companies. It was also tasked with suggesting measures to strengthen the statutory and regulatory framework and to secure compliance with existing framework for the protection of investors.
It has made several other recommendations that seem to go beyond its core mandate for being important to investors.
1. It says there is a surfeit of disclosures that load investors with so much data and noise that the real content necessary to make an informed decision is lost.
2. It recommends that SEBI’s own governance must be well thought through and there is a need to develop a proper enforcement policy to optimise regulatory resources.
3. It has pointed out that different SEBI officials adjudicate the same issue differently. This has been repeatedly pointed out by the appellate tribunal as well. In a stinging criticism it says once a ruling is set aside in appeal, unless it is stayed by the supreme court, SEBI “must abide by the law declared by the appellate order.”
4. It says SEBI must have a firm timeline for the initiation and completion of investigations and proceedings. It also says that the regulatory objective may be better served by timely and sharp action in a few large and complex cases instead of frittering resources on thousands of tiny cases.
5. Importantly, it has recommended the creation of a Financial Redress Agency to handle grievances across sectors. In suggesting this, it goes back to the FSLRC recommendations which have been largely ignored.
