11 September 2008

Forfeiture of demat shares

Yesterday's Economic Times has a piece on 'Thawed frozen demats to yield 20k crores'. It seems the finance ministry has sought the opinion of the law ministry whether demat accounts which have been unclaimed can be forfeited. While many of the shares frozen may be benami in nature (owned by someone other than the shareholder), and the requirement of providing the income tax identity card PAN card may have caused several such illegally held shares to be abandoned, it is important to move with caution. Any law which goes below 7 years (a la Companies Act 'Investor Education and Protection Fund') and which does not give a right to claim securities even after that period would be unfair and possibly amount to expropriation.

Under common law, forfeiture or bona vacantia would typically require upwards of 10/15 years of unclaimed status and even after that period, it would be possible to claim the property. Also, at least some of the non-claimed status is the negligence of the brokers. Take my example, though I haven't held equity shares for the past 3 years, but have a demat account with ICICI Direct. Around three years back I got a series of threatening mails (instead of aplogetic ones) from ICICI that they had lost my KYC papers in the Bombay floods and that I must immediately provide PAN and other details. After providing it once, they apparently could not trace it and kept sending rude reminders - no word of apology for losing it twice in the first place because of their negligence. After providing the same documents thrice (the last of which over a year back), I received an email from ICICI on 9th Sept 08 that my account did not have PAN details! Well, so much for illegal accounts. Luckily there is nothing to freeze there :)

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