4 hrs ago
What Happens to Shares When Legal Heirs Disagree?
When someone who owns shares dies, the shares do not automatically belong to the nominee.
The nominee can temporarily hold or receive them, but generally does so for the legal heirs.
If there is no nominee, the account may be frozen until the heirs provide the required legal documents.
If several heirs are entitled to equal parts, one person cannot make the others sell their shares.
Each heir usually needs a demat account to receive their portion.
If one heir refuses to cooperate, the family may need help from a court.
A court can also be asked to stop someone from selling disputed shares.
Dividends may remain unpaid during the dispute.
If dividends stay unclaimed for seven years, they and related shares can be transferred to the Investors Education and Protection Fund.
A nominee can receive and control shares temporarily but acts as a fiduciary for the legal heirs, not as the beneficial owner.
Without a nominee, the deceased investor’s demat account may remain frozen until heirs provide succession documents or obtain a court order.
Where heirs inherit equally, one heir cannot force the others to sell or transfer their portions.
If an heir refuses to cooperate, the others may need a succession certificate, probate, letters of administration, or another court order.
Unclaimed dividends can move to the Investors Education and Protection Fund after seven consecutive years, while bonus and split shares remain part of the estate.
- Who
- The deceased investor’s nominee and legal heirs, with the depository participant handling the transmission process.
- What
- The article explains how shares in a demat account are controlled, transferred, divided, or protected when multiple heirs disagree.
- Where
- In the deceased investor’s demat account and, where necessary, through a civil court and the relevant depository participant.
- When
- After the demat account holder dies and during the period required to settle succession and ownership.
- Why
- Because nomination, legal heirship, and succession are different, and disagreements can prevent the transfer or sale of inherited shares.
Nominee’s Administrative Role
Legal Heirs’ Beneficial Rights
Who receives or controls the shares
Nominee’s Administrative Role
The nominee can have the shares transmitted to their demat account and exercise interim control, subject to acknowledging their fiduciary role.
Legal Heirs’ Beneficial Rights
The legal heirs are treated as the beneficial owners according to succession, so the nominee cannot treat the shares as personal property.
Whether one person can sell
Nominee’s Administrative Role
A nominee or heir may be able to receive the securities administratively, but that does not establish unrestricted ownership.
Legal Heirs’ Beneficial Rights
Other heirs can challenge an unauthorized sale, seek an injunction, and pursue recovery of their proportionate proceeds.
Resolving disagreement
Nominee’s Administrative Role
The depository participant requires the relevant transmission forms and supporting documents before processing the transfer.
Legal Heirs’ Beneficial Rights
If an heir refuses to cooperate, the other heirs may need to obtain a succession certificate or another court order.
Key facts
- Nominee’s status
- The nominee may receive the shares but holds them in a fiduciary capacity for the legal heirs.
- No nominee
- The demat account may be frozen until heirs provide a succession certificate, probate, letters of administration, or another accepted legal document.
- Equal inheritance
- If heirs inherit equally, one heir cannot force the others to dispose of their portions.
- Required accounts
- Each heir needs a demat account for securities to be transmitted from the deceased’s account.
- Disputed sale
- Heirs may seek a legal notice, civil recovery proceedings, and an interim injunction to prevent or address an unauthorized sale.
- Unpaid dividends
- Unpaid or unclaimed dividends are transferred to an Unpaid Dividend Account under Section 124 of the Companies Act, 2013.
- Seven-year deadline
- After seven consecutive years of unclaimed dividends, the dividends and underlying shares may be transferred to the Investors Education and Protection Fund.
Quotes
Shabnam Shaikh
Partner at Khaitan & Co., quoted on nominee rights and inheritance.
“The Supreme Court in Shakti Yezdani v. Jayanand Jayant Salgaonkar settled that a nominee is merely an interim holder or trustee — not the beneficial owner — and holds the shares and attendant rights (including dividends and voting rights) in trust on behalf of the legal heirs until the succession is settled”
financialexpress.com
“The critical risk is that if dividends remain unclaimed for 7 consecutive years, both the unclaimed dividends and the underlying shares themselves (including any bonus shares) are mandatorily transferred to the Investors Education and Protection Fund (IEPF), making recovery significantly more difficult”
financialexpress.com
Sources
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