Bogged down by demat?

Bogged down by demat?

Getting share certificates dematerialised can sometimes become an exasperating journey. BT alerts you about the key hurdles along the way.

Around mid-2009, when Kanika Singh, a 48-year-housewife in suburban Mumbai, thought of investing in a property, she reckoned she would have to sell the shares of over a dozen companies that had been handed down to her by her deceased father. Since those share certificates had multiple holders, including her father and four siblings, she figured it would take 2-3 months to get them transferred in her name and credited to her demat account before she could sell them. So far, she has managed to "demat" only half of those shares.

Cut to another part of Mumbai, where the Narayanans, a couple in their 60s, have been sitting on share certificates of bluechip companies worth Rs 2,00,000. Three months back, their neighbour, Jaideep Singh, 38, a retail banker who makes pots of money from the stock market, offered to help them with the dematerialisation of those shares.

Today, a lot of the formalities remain incomplete, and Singh realises that the whole process is going to take a lot more time than the 60 days that he initially had in mind to do the job. Kanika Singh and the Narayanans are typical examples of people whose efforts to get the physical shares dematerialised have run into unexpected roadblocks, taking a huge toll of their time, effort and money, and even upsetting some of their major plans.

Demat Dos
Be ready for one or all of the following:

  • More than one demat account if the share certificates are held jointly.
  • An affidavit if your old and current signatures do not match. Signature mismatch is the biggest problem shareholders face.
  • Multiple identity/residence proof, as your depository or the company registrar may ask for more than one proof.
  • To inform your depository if you change your bank account.
  • The bottom line: Getting some of your share certificates dematerialised can take up to a year. So have patience.
However, the problems arise not so much due to the demat process per se, which is quite simple. One just needs to open a demat account with a depository participant (DP) which could be a bank or a broker, fill a demat request form and submit it to the DP and get the shares credited to one's demat account in electronic format in 30 days. Instead, most of the problems occur on account of the way in which the share certificates are held, which, in turn, determines the ease or difficulty of the demat process. BT gleans from the experiences of Kanika Singh and the Narayanans some of the key problems faced during the demat process and shows how to deal with them.

You may need to open a new demat account
Some of the share certificates held jointly by Shyam and Vinita Narayanan could not be dematerialised. This was because physical shares can be transferred into a demat account only if the name, its order and the type of ownership of the demat account matches with those in the share certificates. Since the existing demat accounts are in their individual names, they were required to open a new joint demat account to get the jointly-held shares credited into it. They can then transfer it to any one of their existing individual accounts.

Shyam faced another problem as he owned some shares as a joint holder with his deceased mother. Getting these shares dematerialised took a lot of time, as he had to send a notarised copy of his mother's death certificate to the company so that her name could be deleted from the shares certificates before those could be dematerialised. Kanika Singh has faced a similar problem with several shares.

The Narayanans also learned that jointly-owned shares can be transferred to a jointly held-demat account even if the sequence of the holders' name in the certificates is different. Shyam is the first holder in the joint demat account but a second holder in some of the share certificates, but those shares were transferred to this account by just filling up the "transposition cum demat request form".

If the signatures do not match
One of the share demat requests of Narayanans was rejected due to signature mismatch. "How would one remember the way he or she signed on a piece of paper 25 years ago?" asks Jaideep Singh. Signature mismatch is the most common reason for rejection of share transfer or demat requests, as Kanika Singh has learnt during her tryst with the demat process. For a company which issues shares, a signature is the only way to ensure that the person is the same individual to whom shares were originally issued. The registrars have signature experts for matching signatures, but some companies also have an independent audit team which verifies the signatures of shareholders for demat and other requests.

Usually, when a signature mismatch occurs due to a difference in the spellings, company registrars and DPs require the signature of the share certificate/account holder to be attested by his bank along with the seal of the bank, name of the bank manager and the address of the branch along with a self-attested copy of the identity/residence proof. In case of a major difference in the signature, an affidavit from the court along with the identity/residence proof needs to be submitted.

If the residential address has changed several times
Most of us forget to inform the companies whose shares we hold about changes in our addresses. As a result, we miss out dividends, bonus or new certificates issued by companies. As both Kanika Singh and the Narayanans are getting their current addresses updated in the company records as part of the share transfer process, they could possibly be getting arrears of dividends which the company may have paid out in the past. But companies can pay such arrears only up to seven years from the date of declaration of dividend or bonus.

When the company gets de-listed, merged, de-merged, amalgamated
Many people end up sitting with shares of companies that have delisted from the stock exchanges. The exchanges require such companies to accept share buy-back requests for at least one year after the delisting of shares. Such shareholders can get their money back by filling a share transfer form, getting their signatures attested from their bank on the share transfer form and sending it to the company's investor relations cell provided the one-year period has not elapsed. The Narayanans are now stuck with Essar Steel shares which delisted from stock exchanges way back in December 2007.

Also, in case of a merger, demerger or split of a company's shares, the old share certificates need not be surrendered to the company as they stand cancelled. The DPs do not accept such share certificates. In such cases, companies issue new share certificates to the existing shareholders in their records. Getting one's residential address regularly updated in company records particularly helps in such instances as the new share certificates are mailed to you. By not updating their address earlier, the Narayanans had to submit their residence proof to company registrars with a request to issue new duplicate share certificates. Getting this done has added to the delays.

If the company's name has changed
Often companies change their names and this can confound shareholders. So before sending the demat request for such shares, one must check the new name of the company, along with which the folio number also changes. Usually in such cases, one needs to get the sticker with the new name from company registrar's office, attach it to the certificates with the old name before filling the demat request form with the new name of the company. However, some companies or their registrars may not require you to run around as they can emboss the new name when the demat request form comes to them.

If it's a matter of a will
In case the share certificates are part of the will of a deceased shareholder, then the surviving shareholder has to produce a probate from the court which proves that he is the legal heir. In the absence of a registered will, a succession certificate and a letter of administration from the court has to be obtained and submitted along with the demat request form. "In case of death of a shareholder, we follow the legal regulations which require succession certificate or will. But now we have made it compulsory to assign a nominee in a demat account, so in case of death there is no hassle to the other joint shareholders," says Cyrus Khambata, Senior VP at CSDL, the second largest DP.