Transmission of Securities & Nomination Facility

Topic 32 — Depositories Act: Transmission on Death, Nomination, Joint Holdings & Survivorship | SEBI Law Officer

Transmission of securities — the transfer of a beneficial owner's demat holdings on their death to the legal heirs or nominee — is one of the most practically significant aspects of the depository system. The nomination facility provided under the Depositories Act simplifies this process enormously, avoiding lengthy succession certificate and probate proceedings in most cases. SEBI has progressively strengthened the nomination framework, most recently in 2021-22 requiring listed companies to collect/update nomination data from all demat account holders. These provisions are tested in SEBI Law Officer examinations through both MCQ and descriptive questions.

1. Transmission Distinguished from Transfer

Feature	Transfer	Transmission
Cause	Voluntary act of the parties — sale, gift, settlement	Operation of law — death, insolvency, lunacy of beneficial owner
Who initiates	The transferor (beneficial owner)	Legal heir, nominee, administrator, liquidator
Consideration	Usually for value (sale)	No consideration — involuntary
Documents required	DIS (Delivery Instruction Slip)	Death certificate + succession documents OR nomination form
Stamp duty	Not applicable on demat transfer	Not applicable
SEBI procedure	Standard DP transfer instruction	Transmission procedure under SEBI (D&P) Regulations

2. Transmission on Death of Beneficial Owner

2.1 Where Nominee is Registered

If the deceased beneficial owner had registered a nominee with their DP:

The nominee submits: (a) death certificate of the beneficial owner; (b) identity proof of the nominee; (c) transmission request form to the DP.
The DP verifies the documents and forwards to the depository.
The depository transfers the securities to the nominee's demat account.
The entire process can be completed without a succession certificate, probate, or court order — the nominee's receipt is a valid discharge for the DP and the issuer.
Important legal point: Transmission to nominee does NOT affect the legal ownership of the securities. The nominee holds the securities on behalf of the estate — legal heirs can still claim the securities from the nominee. The nominee is not the absolute owner.

2.2 Where NO Nominee is Registered

If no nominee was registered, the legal heirs must follow a more cumbersome process:

For holdings up to ₹5 lakh: Indemnity bond + affidavit is sufficient (simplified procedure for small holdings).
For holdings above ₹5 lakh: Succession certificate OR probate of Will OR Letters of Administration from a competent court.
The legal heir submits the court order, death certificate, and identity proof to the DP.
DP verifies and forwards to depository — depository transfers to the legal heir's demat account.

3. Nomination Facility — Legal Framework

SEBI (Depositories and Participants) Regulations, 2018 — Regulation on Nomination: A beneficial owner may nominate one or more persons to whom his demat account holdings shall be transmitted in the event of death. A nominee must be an individual — not a company, trust, or partnership. A minor can be a nominee if a guardian is specified.

Key aspects of the nomination facility:

Multiple nominees: A beneficial owner can nominate up to THREE nominees — specifying the percentage of holdings to be transmitted to each.
Nominee must be an individual: Only natural persons can be nominees — not companies, HUFs, partnerships, or societies.
Minor as nominee: A minor can be nominated — a guardian must be specified. On transmission, the guardian manages the securities until the minor attains majority.
Change of nomination: The beneficial owner can change the nominee at any time by submitting a fresh nomination form to the DP.
SEBI 2021-22 mandate: SEBI required all existing demat account holders to either register a nominee or provide an explicit opt-out declaration — failing which accounts were frozen.

4. Transmission in Case of Insolvency

If a beneficial owner is declared insolvent under the Insolvency and Bankruptcy Code, 2016:

The official receiver or liquidator is entitled to the securities as part of the insolvent's estate.
The official receiver submits: court order appointing them + proof of insolvency declaration.
The DP transmits the securities to an account controlled by the official receiver.
The securities form part of the insolvent estate available for distribution to creditors.

5. Joint Holdings — Survivorship Rules

Demat accounts can be held jointly (up to three holders). Rules on death of a joint holder:

Joint holding with survivorship clause: On death of one joint holder, the surviving holder(s) become the sole beneficial owner — the deceased's share automatically passes to the survivor. No transmission procedure needed.
Either-or-survivor instruction: Either joint holder can give transfer instructions independently — useful for trading convenience.
Both-or-survivor instruction: Both joint holders must jointly authorise transfers — higher security but less convenient.
Death of ALL joint holders: Treated as a single beneficial owner's death — nominee or legal heirs must follow the transmission procedure.

6. Nominee's Rights vs Legal Heirs — The Legal Position

A fundamental legal question is whether a nominee's right to receive securities on transmission supersedes the rights of legal heirs under succession law. The Supreme Court has addressed this question:

📖 Harsha Nitin Kokate v. The Saraswat Co-operative Bank Ltd. (2010) 113 Bom LR 2014 (Bom HC)

Facts: Dispute whether nomination under the Companies Act / Depositories framework gave the nominee absolute ownership, overriding the rights of legal heirs under a Will.

Held: The Bombay High Court held that a nominee is NOT the absolute owner — nomination merely facilitates transmission to the nominee as a trustee. The nominee holds the securities on behalf of the estate. Legal heirs can claim the securities from the nominee under succession law (Hindu Succession Act, Indian Succession Act, etc.).

Ratio: NOMINATION CREATES A TRUSTEE — not absolute ownership. The nominee receives the securities as trustee for the estate. Legal heirs can claim from the nominee. The nomination only simplifies the administrative process of transmission — it does not override succession law.

7. Model Examination Questions

Q1. Distinguish between transfer and transmission of dematerialised securities. What is the legal position of a nominee under the Depositories Act?

Transfer vs Transmission & Nominee's Legal Position

Model Answer — TRANSFER: Voluntary act; for consideration; initiated by beneficial owner; via DIS. TRANSMISSION: Operation of law on death/insolvency; no consideration; initiated by legal heir/nominee/official receiver. Process on death with nominee: nominee submits death certificate + identity proof + transmission form to DP → DP forwards to depository → depository transfers to nominee's account. No court order needed. Process without nominee: below ₹5 lakh — indemnity bond + affidavit; above ₹5 lakh — succession certificate or probate. LEGAL POSITION OF NOMINEE: In Harsha Nitin Kokate v. Saraswat Bank (Bombay HC 2010), the Court held that a nominee is NOT the absolute owner — nomination facilitates transmission but the nominee holds securities as trustee for the estate. Legal heirs can claim from the nominee under succession law. SEBI's position (2021-22 mandate): all demat account holders must register nominees or provide opt-out declaration — accounts were frozen for non-compliance. Multiple nominees: up to 3 allowed with percentage allocation. Only individuals can be nominees (not companies/trusts).

🎯 EXAM POINTERS — Topic 32: Transmission & Nomination

TRANSFER: Voluntary; for value; DIS instruction. TRANSMISSION: Operation of law (death/insolvency); no consideration.
Transmission WITH nominee: death certificate + ID proof → DP → depository. NO court order needed.
Transmission WITHOUT nominee: below ₹5 lakh = indemnity bond + affidavit; above ₹5 lakh = succession certificate/probate.
Multiple nominees: up to THREE nominees; percentage allocation specified. Only INDIVIDUALS can be nominees.
Minor as nominee: valid — guardian must be specified; guardian manages until minor attains majority.
SEBI 2021-22 mandate: all demat holders must register nominee or opt-out — accounts frozen for non-compliance.
NOMINEE is NOT absolute owner — holds as TRUSTEE for estate. Legal heirs can claim from nominee.
Harsha Nitin Kokate v. Saraswat Bank (Bom HC 2010): nomination = trustee, NOT absolute ownership.
Joint holding survivorship: on death of one joint holder, surviving holder(s) become sole beneficial owners.
Transmission in insolvency: official receiver/liquidator claims securities as part of insolvent estate.

← Topic 31: Pledge & Hypothecation of Demat Securities | Next → Topic 33: Inspection, Inquiry & Penalties under Depositories Act

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