Why the Plea for a Centralised Database for Unclaimed Public Money Required Public Interest Litigation
On 12th August, the bench of justices S Abdul Nazeer and JK Maheswari of the Supreme Court of India (SC) were pleased to issue a notice to the ministries of finance, corporate affairs, Reserve Bank of India (RBI) and Securities & Exchange Board of India (SEBI) in the public interest litigation (PIL) that I had filed with the support of senior counsel Prashant Bhushan (Read here: 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).
 
The struggle to claim legitimate dues is evident from how the unclaimed sum has grown over the decades. In July 2021, a newspaper, quoting www.finmedium.com had estimated it at a massive Rs82,025 crore. Things have only worsened after the rash of untimely deaths in the COVID pandemic starting March 2020. No surprise then that the bench remarked the PIL dealt ‘with an important question’.  Reports of the SC notice  has received huge support even before the matter even comes up for hearing.
 
The interesting thing about our plea is that all regulators and ministries know that people  have a harrowing time claiming their inheritance. They have also been working at improving the system, in fits and starts, but have simply not done enough. Our PIL lists numerous circulars and directives by the RBI asking banks to be more sensitive, or make an effort to track down rightful heirs. There is also a Supreme Court judgement which makes it clear that RBI has been authorised by Parliament to enact policy or issue directions that have statutory force.
 
Nothing changed because there is no pressure to find a holistic solution. We need to get past homilies and motherhood statements and put in the time and resources to create standard operating procedures (SOPs), a centralised database and a world-class system for making effective claims for our inheritance. As I argued in a column in July 2021, unless the government and its regulators are directed to produce results in a time-bound manner, there will be no comprehensive action.
 
In this case, lack of resources is also not an excuse. The interest on Rs82,000 crore of people’s money alone is enough to ensure world-class technology and resources to create something workable, without dipping into public funds or government resources.
 
At Mr Bhushan’s suggestion, the PIL has sought the issue of a writ of mandamus, or any other appropriate order or urgent directions towards creation, in a time-bound manner, of a centralised database providing information about deceased account-holders. We are asking for SOPs to deal with the claims of legal heirs with respect to a massive sum of over Rs82,000 crore in the form of unclaimed bank deposits, insurance, post-office funds, etc.
 
The money remains unclaimed because legal heirs are often unaware of the existence of these deposits or holdings, or because it is impossible to track them down. In many cases, legal heirs, especially those living abroad, have simply given up on their rightful claims because of the harrowing processes which are different for each entity and every bank.
 
So my PIL is not limited to recovering these sums but also pleads to create a more humane system for heirs of deceased persons to claim what is rightfully theirs. The present rules require a probate or succession certificate from court even when there is a valid, uncontested Will or family agreement with indemnities. This is expensive, time-consuming and, often, unaffordable for ordinary Indians.
 
Here is a quick break-up of funds with various regulators. Unclaimed provident fund, insurance, post-office and government savings scheme money is transferred to Senior Citizen’s Welfare Fund (SCWF); unclaimed bank deposits with interest are transferred to the Depositor Education and Awareness Fund (DEAF) with the RBI. At the end of March 2021, DEAF had Rs39,264.25 crore in unclaimed deposits and interest. Unclaimed corporate fixed deposits, bonds, interest and dividends go into the Investor Education and Protection Fund (IEPF) which had Rs4,100 crore at the end of March 2020. Inactive mutual funds (Rs17,000 crore), insurance (Rs15,000 crore), various provident funds and government savings schemes alone could be over Rs50,000 crore; but no clear numbers are available.
 
How Will a Centralised Online Database Help?
A centralised database will certainly  help the rightful heirs of deceased persons search for details and claim their inheritance. The big worry is that such a large  database will be a magnet for fraudsters and identity thieves to steal money. There are legitimate privacy concerns about the data that will be publicly exposed and also whether we can create a verification process that is swift as well as inexpensive.
 
We do not have all the answers at the moment; but the government is sitting on people’s money and it must get the best brains and technology together to create a system to transcend the silos of separate ministries (finance, company affairs, law/courts), regulators and their varying rules to give us our rightful assets. Some facts would help us find a solution:
 
1. RBI, the Securities and Exchange Board of India (SEBI) and IRDAI have directed banks, mutual funds and insurers to display the names of those with unclaimed deposits on their website. But legal heirs are often unaware of the existence of these. We are asking that each of these authorities also makes an effort to reach out to dormant/inactive account-holders or their nominees.
 
2. In the past five years, regulators as well as lenders have access to multiple streams of data (social media profiles, Google, UIDAI/Aadhaar, telecom users and other customer databases, legally and illegally) for easy lending and recovery. Despite access to massive resources in the form of unclaimed funds, no effort is made to use the technology to find savers and/or their heirs.
 
3. Many bank websites provide information about unclaimed deposits but it is difficult to search or make a valid claim based on the information. While RBI urges banks to reach out to holders of dormant accounts, it has refused to put in place SOPs to make valid claims. The result is that each bank and, often, individual bank managers, make up their own rules and demands to release funds (probate, sureties from unrelated persons, indemnities, affidavits, mandatory fixed deposits—Moneylife Foundation has come across a variety of atrocities to deny rightful money).
 
4. IEPF initially required companies to put out data on unclaimed funds. Most companies made this so detailed that it led to fraud and many companies have removed the information from their websites. In 2016, IEPF Authority came up with a website which boasts a simplified, online process for making claims, but it remains a harrowing experience and even searching for unclaimed shares, interest or dividend is difficult.
 
5. Problems with making valid claims have opened up a business opportunity for private entrepreneurs who have put the information of millions of investors on private websites. Some of these, charge a fee to search the database, others allow a free name search and charge for access to details and all of them charge a substantial fee to help claim the money. Doesn’t this amount to an unfair and hefty tax on inheritance? Private entities also offer help with the recovery process, charging between 20%-50% of amount the money recovered.
 
India has progressed by leaps and bounds in technology. We have public service platforms like UPI payment system (which forced people to obtain biometric identification, Aadhaar, with all its flaws). We have streamlined sensitive passport issuance, online corporate filings (MCA-21) and online tax collection through technology. We are using apps and websites for many things from ticketing to accessing vaccine certificates. We cannot be in the Dark Ages when it comes to inheritance rights and rightful claims of ordinary people. A government that has promised ‘ease of living’ owes it to us to use our resources (interest on unclaimed private money) to give us an efficient, world-class, fool-proof, technology-based and timely solution to claim what is rightfully ours.
 
 
Comments
jjalma1939
3 months ago
The problem lies with the RTA system. Forget about legal heirs, current owners of shares who have shifted residence find that RTAs keep rejecting applications, keep asking for documents on an omnibus demand, instead of specific demand, and reject them repeatedly. This has happened to me with RIL and its RTA Karvy. (the same Karvy punished by authorities). Previously one had to only write to the Secy of the company, but today RTAs don't care for shareholder interest
sudhir.sr.rao
4 months ago
My experience in claiming refund from IEPF is horrifying. Is any help possible ?
Uday Thakurdesai
4 months ago
A related issue is the income tax assessment of the deceased. The assessment is done separately on the estate of the deceased until the complete distribution of assets to the legal heirs. The legal heir is required to apply for a PAN for the estate and the procedures require the deceased’s will to be registered.

In the first place, there is a very poor awareness among the taxpayers at large about the need to prepare a Will. And even those who have written one are reluctant to register it for two reasons – they leave behind a single heir (son or daughter, as the case may be) OR they are confident there will be no dispute wherever there are a couple of beneficiaries or more AND the archaic procedures at the Registrar’s office that consume over half a day of all the witnesses and a doctor who are required to be present at the office.

Let us reflect on the scenario that presents itself in respect of unregistered wills. The legal heir or the executor to the Will cannot proceed in the absence of this requirement. As a consequence, tax will continue to be deducted against the deceased’s PAN as long as the heir/executor is not able to obtain a Probate of a Letter of Administration from a competent court. And it is common knowledge that it takes a long time, at times even a few years to obtain one, apart from the costs involved in obtaining such an order.

The situation may also result in a loss of revenue to the Govt. The Income-tax return of the Estate cannot be filed in the absence of a PAN. Whoever claims to be the legal representative will not file the return against the PAN of the deceased. If the tax deducted at source is less than the assessable tax, it is the Govt that ends up losing the revenue.

What could be the reason for insisting on the registration of the Will? Considering that the claimant would be liable for the assessment, it is unlikely that he/she would willingly undertake the role. Of course, if there is a dispute among the heirs, one or more of them would certainly want to undertake the role to deny the others the share of the Estate. It is, therefore, preferable to insist on an undertaking from every applicant, who submits an unregistered will with his application, that he indemnifies the Govt against any claim by any other person claiming to be a legal representative. In such cases, refunds under the Estate PAN should be withheld until the resolution of the dispute while at the same time holding the applicant liable for the amount of the assessed tax.

Also, there are several instances where a nominee to a bank account may not necessarily be designated as a beneficiary in the Will. Present laws allow only one person to be nominated to a bank account even though there may be more than one heir to the Estate. In such situations, if the nominee wants to play mischief, he/she can obtain the necessary letter from the bank and obtain a PAN on the strength.

If due to the above circumstances, there is no smooth passing of the Estate to the beneficiaries, it will result in adding to the unclaimed deposits. Some of the existing ones may be attributable to this reason, though it is not possible to make an estimate.
arvind kumar singh
4 months ago
I appreciate you on behalf of Senior citizens .
Mam,may you write an article on seizure of Rs 56 crore, by income tax department, from Previous Axis mutual fund director Mr Joshi\'s kin\'s account.the news published in times of india yesterday Delhi edition.
hamungel
4 months ago
Great Effort !
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