Chapter 6: Functions of DP - Transmission and Nomination

In securities law and depository operations, there is a fundamental statutory distinction between Transfer and Transmission of securities:

+-----------------------------------------------------------------------------------+
|                        TRANSMISSION WORKFLOW SCENARIOS                            |
+-----------------------------------------------------------------------------------+
|                                                                                   |
|                       +----------------------------------+                        |
|                       |     DECEASED ACCOUNT HOLDER      |                        |
|                       +-----------------+----------------+                        |
|                                         |                                         |
|                 +-----------------------+-----------------------+                 |
|                 |                                               |                 |
|                 v                                               v                 |
|     +------------------------+                      +------------------------+    |
|     |  JOINT HOLDING ACCOUNT |                      |  SOLE HOLDER ACCOUNT   |    |
|     |  (Two or Three Holders)|                      |  (Single Individual)   |    |
|     +-----------+------------+                      +-----------+------------+    |
|                 |                                               |                 |
|                 v Survivorship Rule                             v                 |
|     +------------------------+                 +----------------+----------------+
|     | Securities Transmitted |                 |                                 |
|     | to Surviving Holder(s) |                 v                                 v
|     | via Form & Death Cert  |      +---------------------+           +---------------------+
|     +------------------------+      |  NOMINATION EXISTS  |           | NO NOMINATION FILED |
|                                     | Transmitted to      |           | Transmitted to      |
|                                     | Registered Nominee  |           | Lawful Legal Heirs  |
|                                     +---------------------+           +---------------------+
|                                                                                  |
|                                                       +--------------------------+--------------------------+
|                                                       |                                                     |
|                                                       v                                                     v
|                                            +---------------------+                               +---------------------+
|                                            | VALUE <= ₹5 LAKHS   |                               | VALUE > ₹5 LAKHS    |
|                                            | (Simplified Docs)   |                               | (Full Succession)   |
|                                            | - Indemnity Bond    |                               | - Succession Cert   |
|                                            | - Affidavit & NOC   |                               | - Probate of Will   |
|                                            +---------------------+                               +---------------------+
+-----------------------------------------------------------------------------------+

When securities are held jointly in a demat account (e.g., Holder A and Holder B) and one of the joint holders passes away:

• The Rule of Survivorship Applies: The surviving holder(s) become the sole legal titleholders of the securities. The legal heirs or nominees of the deceased joint holder have no standing or claim over the depository account against the surviving joint holders.
• Operational Procedure:
  1. The surviving joint holder(s) submit a Transmission Request Form (TRF) to the DP.
  2. The submission must be accompanied by an original or notarized copy of the Death Certificate of the deceased holder.
  3. The surviving holders must provide a Client Master Report (CMR) of a new or existing demat account opened in the names of the surviving holder(s) in the exact surviving order. (A deceased person's name cannot remain on an active demat account).
  4. The DP verifies the death certificate, closes the original joint account, and transfers 100% of the securities into the demat account of the surviving holder(s).

Where an individual was the sole holder of a demat account and had registered a valid nomination during their lifetime:

• Primacy of Registered Nominee: The registered nominee is the sole person recognized by the depository as entitled to receive the securities.
• Required Documentation:
  1. Transmission Request Form (TRF) executed by the nominee.
  2. Original or notarized copy of the Death Certificate of the deceased account holder.
  3. Self-attested copy of the PAN Card and proof of identity/address of the nominee (along with KYC verification).
  4. Client Master Report (CMR) of the nominee's personal demat account where the securities are to be credited.
• Timeline for Processing: SEBI mandates that upon receipt of complete and valid documentation from the nominee, the DP must process the transmission and credit the securities to the nominee's demat account within seven calendar days.

When a sole account holder dies without registering a nominee (or where all registered nominees have predeceased the holder), transmission requires formal proof of inheritance:

1. Simplified Documentation Threshold (Portfolio Value Up to ₹5 Lakhs)

To alleviate administrative hardship for small retail investors, SEBI established a simplified transmission framework for portfolios valued at or below ₹5,00,000 (Rupees Five Lakhs) as on the date of application:

• Letter of Transmission signed by all surviving legal heirs;
• Notarized copy of the Death Certificate;
• Indemnity Bond executed on non-judicial stamp paper of prescribed value by the claimant legal heirs, indemnifying the DP and depository against future adverse claims;
• Affidavit from all legal heirs affirming relationship and confirming that there are no other claimants;
• No Objection Certificate (NOC) or Deed of Disclaimer signed by all other legal heirs who voluntarily relinquish their claims in favor of the claimant legal heir.

2. Standard Statutory Documentation (Portfolio Value Exceeding ₹5 Lakhs)

Where the market value of the securities portfolio exceeds ₹5,00,000, the claimant legal heirs must produce formal judicial or statutory instruments:

• Succession Certificate issued by a competent civil court having territorial jurisdiction over the assets of the deceased; or
• Probate of Will: If the deceased left a Will, probate granted by a High Court / civil court of competent jurisdiction (mandatory in presidency towns of Mumbai, Kolkata, and Chennai); or
• Letters of Administration: Granted by a competent civil court appointing the claimant as administrator of the deceased's estate; or
• Court Decree: A final decree or partition deed passed by a civil court determining the legal shares of the disputing heirs.

To prevent operational delays and reduce hardships faced by grieving families:

• Centralized Transmission Verification: Depositories provide centralized tracking portals where legal claimants can monitor transmission requests submitted across different participants.
• Immediate Account Freezing: Upon receiving formal written intimation of the death of an account holder along with proof of death, the DP must immediately freeze the demat account for all debits to prevent unauthorized transfers or fraudulent liquidations by third parties.
• Preservation of Transmission Records: All transmission records, legal instruments, indemnity bonds, and court orders must be preserved by the DP for a statutory period of eight years for audit inspection.

Depository Participants must navigate nuanced operational scenarios and compliance mandates when executing transmission requests:

1. Transmission of Encumbered and Locked-in Securities

• Pledged Securities: If securities in the deceased holder's account are subject to an active pledge or hypothecation, transmission cannot be processed directly. The claimant must either:
  1. Repay the underlying debt and have the pledgee (lender) release the pledge via an electronic unpledge instruction; or
  2. Obtain written consent from the pledgee bank/NBFC agreeing to transmit the securities to the claimant's demat account with the pledge encumbrance flag continuing undisturbed.
• Locked-in Securities (ESOPs, Promoter Quotas, Pre-IPO Holdings): If the deceased held shares subject to a statutory lock-in period, transmission is legally permitted. However, the DP must ensure that the lock-in flag and expiration release date are identically transferred to the recipient's demat account. The securities remain locked until the original expiry date.

2. Transmission for Illiterate Legal Heirs or Physical Incapacity

Where a legal claimant or legal heir is illiterate or physically incapable of signing:

• The thumb impression of the claimant must be affixed to the Transmission Request Form and Indemnity Bond in the physical presence of a Judicial Magistrate, Notary Public, or the Manager of a scheduled commercial bank where the claimant holds a operational bank account.
• The attesting officer must sign a formal certificate attesting that the contents of the transmission documents were read out and explained to the claimant in their vernacular language before the thumb impression was affixed.

3. Transmission to Non-Resident Indian (NRI) Legal Heirs

When securities of a deceased Indian resident are claimed by an NRI legal heir:

• The transmission must comply with the Foreign Exchange Management Act (FEMA), 1999, and RBI master directions.
• The transmitted securities are credited to the NRI claimant's Non-Resident Ordinary (NRO) demat account on a non-repatriable basis.
• If the claimant subsequently seeks to repatriate the dividend income or sale proceeds overseas, they must submit Form 15CA and Form 15CB certified by a practicing Chartered Accountant confirming that applicable Indian capital gains and withholding taxes have been discharged.

4. Statutory Service Turnaround Times (TAT)

Under SEBI's service-level mandates:

• DPs must acknowledge receipt of transmission documents within two business days.
• If documents are deficient or incomplete, the DP must send a single, comprehensive deficiency letter within seven calendar days, detailing all required corrections. DPs are strictly prohibited from issuing piecemeal objections.
• Complete transmission requests must be settled and credited within seven calendar days where nomination exists, and within twenty-one calendar days where transmission is based on succession certificates or legal heir documentation.