Still holding shares of listed companies in physical form? They will be worthless after December 5 if they are not ‘de-materialised.’ On June 8, market regulator SEBI issued a notification that transfer of securities will not be permitted unless they are de-materialised.

According to a top official at one of India’s largest depositories, shares worth more than ₹1,000 crore, including in large companies such as Tata Steel and Reliance Industries, were still held in physical form. In percentage terms, though, these physical shares are a minuscule portion, the source told BusinessLine .

A large amount of shares held in physical form are those held by a custodian of ‘enemy property’ in India or those under dispute lying with various law enforcement agencies. The custodian of enemy property was set up by the government after the India-Pakistan partition of 1947, to take care of all the property belonging to those who moved to Pakistan. Apart from immovable property, it included shares worth several thousand crore rupees.

Instances of fraud

But SEBI’s move is mainly based on recent instances of fraud by share-transfer agents. Complaints have been filed against such agents. Last year, Sharepro Services, a share transfer agent, was alleged to have defrauded several companies. Unclaimed dividends worth crores of rupees were illegally withdrawn by a few Sharepro employees.

Instead of crediting or sending dividends to their rightful owners, Sharepro executives conned the banks into transferring the dividends into other accounts held by them.

Large companies, including Aptech, Britannia Industries and Asian Paints, had filed complaints against Sharepro.

Companies are required to publish a list of people whose dividends are unclaimed. The fraudsters use this data and mostly target those accounts in which the dividend is unclaimed for several years.

Once they get information about unclaimed securities, mostly of a deceased holder, they use fraudulent methods to make forged documents, such as a voter ID or PAN card in the name of the deceased holder. With this ID proof, they open a bank and demat accounts.

In an attempt to eliminate such frauds, depositories and brokerages houses had asked SEBI to make holding shares compulsory only in the demat form. The Depositories Act, 1996, however, gives people the option to own shares in physical form as well. Experts say that after December 5, as notified by SEBI, investors may be able to hold shares in physical form but they may not be transferable, which could affect their value.

Related Topics
comment COMMENT NOW