Earlier than the appearance of the dematerialization period of listed shares across the yr 2000, the sale and buy of shares have been solely handbook. Inventory brokers used to behave as intermediaries for connecting consumers and sellers. The switch of shares passed off by way of a bodily kind SH-4, which is known as a ‘switch deed’ in frequent parlance.
The transaction was thought-about full as soon as the customer submitted the unique share certificates and switch deed to the corporate for getting the shares registered in his or her identify.
When you have been a purchaser in a single such transaction and, for no matter causes, nonetheless maintain bodily shares with the switch deed with out getting it transferred in your identify, word that the bodily shares you maintain might not have any worth now. You might not have the ability to do a lot about it as Sebi banned the bodily switch of shares from 1 April 2019. The shareholder data of the corporate will proceed to have the vendor’s identify. The customer won’t be entitled to any of the advantages {that a} shareholder is entitled to. The price of buying the shares goes down the drain.
I share my perspective on the regulator not permitting the switch of bodily shares within the above instances. Even immediately, there have been many real consumers who maintain the bodily shares with a switch deed however will not be in a position to declare their shares.
Dangerous deliveries
Again then, because the whole course of was handbook, there have been a number of instances of unhealthy deliveries whereby the consumers couldn’t get them transferred of their names resulting from technical points similar to mismatch in identify or signature, distinction in stamp obligation, and so on.
There have been lakhs of such instances of unhealthy deliveries that are persisting as, in some instances, the sellers don’t cooperate in case of signature or identify mismatch, or typically sellers will not be traceable.
There have been additionally instances the place the customer missed lodging of shares — submitting the unique share certificates and switch deed to the corporate for getting the shares registered in his/her identify— inside a stipulated time interval of 1 yr from execution of the deed.
SEBI’s Clampdown
Sebi’s notification dated 8 June 2018 on banning the bodily switch of shares and lodging with firms was a complete shock to traders who purchased bodily shares however couldn’t get them transferred resulting from above causes. With the extension of due dates, lastly, Sebi in September 2020 put an finish to the re-lodgement of switch requests with the businesses.
Due to this fact, no bodily transferred shares will be lodged now and the real purchaser of the shares is left with no choice to get the possession for which they’ve already paid the consideration. The one distant chance is to undergo the authorized course of by filling fits in court docket. However with the extent of pendency of instances in our nation, this appears to be a non-viable possibility for such traders. There doesn’t appear to be any manner out for such consumers.
In my view, this entire ban on the method of getting possession on bodily held securities with a switch deed isn’t justified because it deprives real claimants of their proper and can also be in opposition to the ideas of pure justice.
Loophole
As per our expertise, the ban on the switch of bodily shares with a switch deed might additionally permit the sellers to take undue benefit by making use of for a replica problem with the corporate. The corporate data nonetheless present the vendor as a registered holder of securities, as consumers didn’t lodge the shares with the corporate. Sebi has additionally not too long ago waived the requirement to submit surety for the duplicate problem of shares. This can make the job of fraudsters a lot simpler who intend to say duplicate shares regardless of promoting the shares to a purchaser years in the past.
Measures required
To sum it up, Sebi may need stopped bodily switch with an intent to cease the manipulations within the course of but it surely has additionally disadvantaged a number of real traders who’re entitled to these shares. Thus, regulators ought to contemplate these details and circumstances and open the window for bodily switch of securities clearly with checks in place to stop fraudulent transactions. Regulators might ask the duplicate share problem claimants to offer indemnity and surety or might ask for some financial institution assure or lien of fastened deposits, and so on., for the equal quantity for a sure interval.
Vikash Jain is co-founder at Share Samadhan Restricted
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