There is a lot of confusion, rather lack of clarity with regards to Dematerialisation of physical shares. With this article, I have tried to give a gist of the process and provide a solution to common problems an investor might face who has physical shares and wants them to be dematerialized.
The Securities and Exchange Board of India (SEBI), on June 08, 2018, issued regulations pertaining to the mandatory dematerialization of securities for effecting transfers. The guidelines will be effective from December 05, 2018. This means post 5th December, all requests for transfer of shares will have to be in the demat form only.
Any transfer of shares in physical form will not be allowed after December 05 2018.
Having said that, this rule has 2 exceptions:
- It is not applicable to the transfer of title of shares by way of inheritance or succession
- Transposition of shares i.e. interchanging of the order of the name of shareholders
will still be allowed after 5th December 2018.
Process of Transfer
The physical transfer of shares follows a process where the transferor and the transferee have to fill up a share transfer form (SH – 4). Share transfer forms have to be duly affixed of the value of 0.25% for the consideration of shares i.e. the stamp duty has to be paid @0.25 % of the value of the shares of the day the franking is done.
The stamp duty value of 0.25% has to be paid Online on https://gras.mahakosh.gov.in/echallan/ if the amount of duty is less than Rs. 5,000/-. In the case of higher amounts, the stamp duty is to be paid through E-SBTR at the respective bank branches. Then the form has to be submitted to the respective local branch.
Once the SH4 form has the stamps affixed it has to be submitted to the respective registrars of the company along with the original share certificate, PAN of both the transferor and the transferee along with the supporting documents.
Please note that every round of communication with the registrar takes around 1 to 1.5 months, hence do ensure that the documentation should be in order for the smooth transfer of shares.
This process gets completed in 2 months if all the documents and shares are in order.
Let’s consider situations other than transfer.
1) Loss of Share Certificate
If one does not know the status of the shares or the holding or has lost his share certificates the process becomes challenging and time-consuming.
The status of the shares mainly includes the number of shares which change due to corporate actions like bonus, splits, merger or demerger or the shares may have been transferred to the IEPF A/c.
The basic status of these shares can be collected by asking the registrars. But generally, the registrars do not entertain such questions via phone call or personal visit. They are instructed not to give out any information on the phone calls due to security reasons.
In such case, the shareholder is advised to write a request letter for any query regarding the shares. The same goes through a long process and the revert is sent at the registered address of the shareholder.
The same process can be time-consuming as it takes around 25 to 35 days for any reply. If one does not receive the letter he has to write back to them asking them to dispatch the same again. It is advisable that the letter of enquiry should be furnished with self-attested copies of PAN and Aadhar for registrar’s verification.
Once the registrars have tallied and verified the applicant’s documents the reply is sent. In case the signature of the shareholder does not match as per their records or in case of any other discrepancies the registrar might ask for supporting documents like a banker’s verification or affidavit.
In case of loss of certificates, missing certificates or to apply for a duplicate share certificate the process may also involve FIRs, Affidavits, Indemnity Bonds and Declaration by a surety.
2) Death of a Shareholder
In case of death of a Shareholder, the joint holder needs to write to the registrar notifying the demise of the joint holder by attaching the death certificate along with the above-mentioned documents and request for the process to be initiated.However, in case of the death of a shareholder who was a single holder of the shares, the beneficiaries need to prove their succession.The documentation will differ and will be dependent on the value of the shares, the registrar of the company and whether there is a will in place or not.
All about IEPF
MCA has issued Investor Education and Protection Fund Authority Rules, 2017. As per these rules “Any money as dividend not claimed by an investor within 7 years and 37 days from the date of declaration of dividend, shall be transferred by the company along with interest accrued, if any, thereon to Investor education and protection fund (IEPF).
After 2017 even all Shares in respect of which dividend has not been paid or claimed for seven consecutive years or more have been transferred by the company in the name of Investor Education and Protection Fund (IEPF). There is a separate online procedure which has to be done to claim the dividend and shares from IEPF.First and foremost you have to make sure if the shares are in IEPF by enquiring with the registrar by using any of the above-mentioned ways. Once confirmed then start with the process at the earliest.
It is tedious which involves regulatory compliances to be done. The shareholder has to make an application in e-form IEPF 5 and mention all the details of shares and pending dividends and file with the Ministry of corporate affairs (MCA) and the company. This process of such transfer/ transmission/deletion takes more than 6 months and the shares are directly transferred to the demat account.
Unlisted / Delisted / Suspended Shares
There may be some shares where trading is suspended or they may be delisted. It is advisable to check the last traded price and if the value is not much then one can ignore them.If such companies are unlisted/delisted /suspended but still giving dividends, then It is recommended that these shares should be dematerialized.
It is a lengthy process but if the process is followed with discipline and with proper follow-up you will be getting a value for the physical paper in hand which is worth the effort. You may get frustrated and also get offers from 3rd parties who are willing to buy them at a percentage of the value but it is advisable not to exercise that option as there are chances that the shareholders might burn their hands and lose the shares in the bargain. Beware of sharks and stay informed.
Article written by Neeraj Bahal