SEBI Issues Circular revising nomination facilities in Indian Securities Market

Posted On - 25 February, 2025 • By - Sheetal Agarwal

Introduction

On 10th January 2025, the Securities and Exchange Board of India issued a circular for revision and revamping the nomination facilities in the India Securities Market in order to prevent generation of unclaimed assets by unauthorised entities. This provision will come into force on 1st March 2025.

Key Features of the Circular

According to the circular, the Regulated Entities have been notified to comply with the following guidelines: –

  1. Rule of Survivorship
  1. In case of death of a joint account holder, the regulated entities have been ordered to transmit the assets held to the surviving account holders vide name deletion.
  2. The assets which have been received by the surviving account holders will be treated as ownership and not in the nature of trusteeship.
  3. Surviving joint holders shall be entitled to continue with/change/cancel the nominations made previously.
  4. The mode of operations shall be unaffected by the rule of survivorship.
  5. The norms which are applicable for operation of account/folio shall also be mutatis – mutandis applicable for nomination.

B. In case of simultaneous passing away of joint holders:

  1. The regulated entity will transfer the assets in the account or folio to the registered nominees in order to carry out its required discharge in the event that all joint holders pass away at the same time.
  2. In case there have been no nominees made, the regulated entities shall have to transmit the assets in the account or folio to the registered nominees for effecting its discharge duly.
  3. In event no nominees have been found, the regulated entities shall transmit the assets into the account or folio of either legal heirs or representatives of the youngest of joint holders or as per the will.
  4. In case the account has been held by a Hindu Undivided Family (HUF), the new Karta shall be authorised to operate the account/folio upon the death of Karta. However, in event no new Karta has been found under the applicable laws, the regulated entities shall be liable to affect the transmission of account as per the dissolution deed.
  5. In case the nominee has predeceased the investors, the legal heirs of the nominee shall not be eligible to inherit the assets.

Revamped Norms

As per the new norms, the investors have been mandated by the SEBI to disclose various pertinent details such as their PAN/AADHAR/Driving License Number along with the names and details of their nominees, relation with the nominee and date of birth of the nominee if he/she is a minor. The maximum nominations per investor cannot exceed 10 individuals and the holder of a power of attorney can also not nominate.

In case there is a transmission of joint accounts, the nominees are required to either continue as joint holders or own a separate single account for governing their respective portion. Moreover, nominees have also been empowered to act on behalf of their incapacitated investors and the regulated entities can provide the investors having single account to either empower any one of their nominees to operate the account in case the investor is physically incapacitated or specify the percentage or absolute value of the assets in the accounts that can be encashed by the nominees. Such mandates can also be changed any number of times without having any restrictions.

Requirements for transmission to nominees

The circular has also laid down various requirements for transmission of the accounts to nominees which include numerous documentary evidences such as a self attested copy of the death certificate of the deceased investor, due completion and affirmation of the KYC of the nominees and the due discharge from the creditors in case there is a subsisting credit facility secured by a duly created pledge.

In event the transfer has been affected to the legal heirs from the nominees, a declaration from the nominee needs to be attached along with providing for an online mechanism which shall include an OTP System for the existing and new investors willing to opt out from the process of investments.

In case of incapacitated investors, the SEBI has also directed the Asset Management Companies or registrars and transfer agents to comply with numerous requirements. Firstly, as soon as the information pertaining to the incapacitation of the investor has been received, the officer of the regulated entity shall have to visit the investor in person which shall be followed by a proof of intimation in form of a medical certificate. The officer of the regulated entity shall also be responsible for obtaining a thumb/toe impression of the investor depending upon the degree of incapacitation along with ensuring that the amount of encashment shall be transferred only to the bank account of the investor linked with his contact details.

Lastly, any request for change of pertinent details of the incapacitated investor such as bank account information, mobile number or email addresses shall not be allowed in the interest of security of transactions and a standard operating procedure (SOP) shall have to be followed which shall be constituted by SEBI in order to deal with the incapacitated investors or those having special needs.

Conclusion

This present circular released by the Securities and Exchange Board of India is a welcomed step towards regulating the process of registering nomination and appointment of nominees in the Indian securities market. Through this notification, the SEBI has aimed to provide for the process of appointment of nominees for various investors in order to secure their funds invested in the securities market in event of death or incapacitation and has emphasised the importance of maintaining updated records of nominations by directing the entities to store physical or electronic copies of these records for eight years after the transmission of assets. They are also mandated to acknowledge each submission or update of nominations, regardless of the mode used.

The guidelines also present an opportunity to revise their nominations or opt-out using a secure online mechanism. This process involves OTP verification and an optional video recording feature for enhanced security.

King Stubb & Kasiva,
Advocates & Attorneys

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