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WELL INVESTED, ALL LOST- The Story of How Shares Go Unclaimed.
There is an unfathomable irony that is inescapable when you deal with the law of escheats. The law of escheats, by the way, deals with abandoned wealth or property that passes on to the government if one dies without legal heirs and surprisingly also in the instances where someone forgets to claim what is truly his or hers within specified timeframes! Yes, you read it right. If you forget to claim what is yours within a pre-determined timeframe (one set by the government), it will pass on to the government even if you are alive, leave alone after your death with or without legal heirs. The Law of Escheats is a law unto itself. For the purposes of this article, we are not going to dive into the depths of this law, rather we will watch the ravages it causes as visible from the shores.
It is a conditioned existence for a middle-class family member. One is conditioned to work hard, save, and then invest. All three are necessary to be able to tick all the boxes of someone who has made it and claimed his or her true spot in the middle-class of the society. All through one’s life, one works, saves, invests and endlessly repeats the cycle. One of the biggest reasons we are taught to save and invest is to be able to fall back on it if and when it is needed by us or those near and dear to us. And yet, there are billions of dollars (and Rupees, and Yen, and Pounds) lying unclaimed and either in the custody of the respective governments or well on their way there.
In this article we do not go into the reasons why escheatment occurs. We leave that for another day. I do, however, offer a standard solution- Write a Will, now. This one act will force you to a) gather your wits b) gather your resources, and c) gather the beneficiaries in order to have a set of distribution list so as to ensure your wealth moves out in an orderly fashion, later if not sooner. It is b that is most important, for the purposes of this article. The act of writing your will compel you to refresh your memory about what you really own- and you may just about remember that you had once invested in shares! An intestate death (when one dies without leaving a will) will inevitably wreak havoc on the family. The Indian Succession Act exists so as to resolve the impending and inevitable quarrels when a person dies without leaving a will. Drawing up a WILL has always been a vital part of ensuring a smooth transition of assets, wealth, and legacy of one’s life. It is more so now. While citizens in the advanced countries of the world take it as a regular part of life to draw up a will, it is observed that in India the very subject is a ‘no-go’ territory in family discussions and almost treated as a taboo. Nobody talks about it and nobody thinks about it, until it is too late. So while it is very normal for an American, British, Australian, Japanese, or any other citizen to have a WILL much before it is actually called for or needed (usually NOT LATER THAN when they turn 50), an Indian Citizen often demurs, delays and in a majority of cases NEVER EVER draws up a WILL. Our Courts are clogged with vicious battles fought by warring relatives- all of which could have been avoided by making a simple decision. The reasons why Indian Senior Citizens, who despite being far closer and considerate to, and with, their children DO NOT think of writing a WILL make for an interesting study, which we will take up for another article at another time. But what is pertinent to take note of now during times when catastrophe and pandemonium have almost reached the corners of our street or even our very own gates, ARE THE
CONSEQUENCES OF NOT DRAWING UP A VALID WILL.
Let me illustrate what happens if you ignore this sane advice and leave it to chance. The Negative Consequences Of Not Having A Will:
1. FINANCIAL PLAN FAILS:
If you have not left a Will, your financial plan will be meaningless. Let’s take an example: You wish that one of your minor daughters or an elder adult daughter who is not doing too well right now is to have Rs 1 crore for higher studies or a self-sustaining business. Let’s say this sum of 1 cr is now secure in an FD in your account, or in the form of shares in blue-chip companies. Not leaving a will means this amount may be distributed among all legal heirs as per Indian Succession Laws and she may end up with only Rs 20 lakhs, or 10 or less depending on the number of legal heirs. Even if you have nominated her in your demat account and notified statutory authorities as regards your share holdings, she will still need an NOC from other legal heirs to claim it all for herself. This is not what you wanted when you did this particular piece of financial planning.
2. POTENTIAL CONFLICT BETWEEN FAMILY MEMBERS:
If you don’t have a will in place, the laws of the land come into play to decide which family members are eligible for how much. This will inevitably lead to some of your heirs getting less than what they deserved, or maybe nothing at all unless they are strong and vigilant. There will be situations where specific items that are particularly valuable or have emotional value for certain members of the family will create rifts and will fall under the ownership of someone that never really deserved it. Very often ensuing squabbles create lifelong animosity between family members.
3. IF UNMARRIED OR IN A LIVE-IN RELATIONSHIP, YOUR PARTNER COULD LOSE THEIR HOME:
If you haven’t married your partner or entered into a civil partnership, they MAY NOT be eligible for a share of your legacy ALTHOUGH there are several precedents that now recognize a live-in relationship. This is the case even if they have been sharing a home with you. Your assets and wealth will go directly to your children or to another relative in the family, as the case may be. Your partner will be forced to leave the comfort of the home he or she has enjoyed for many years.
4. YOU MAY LOSE CONTROL OF WHO LOOKS AFTER YOUR CHILDREN OR GRANDCHILDREN WHO DEPEND ON YOU:
Writing a will a lot more than merely deciding who inherits your assets. It can also be used as a tool to nominate a guardian who will look after your children or minor grand-children in the event of your death. You can determine, dictate, and cause to enforce any financial arrangements that empower the guardian to raise your children or minor grandchildren. If you fail to make these arrangements, your children may end up living with an unpleasant family member or be the subject-matter of lengthy court cases involved, where relatives fight over the custody of your children simply to be able to control assets.
5. LEGAL BATTLES MAY CAUSE TREMENDOUS STRESS AND FINANCIAL LOSS:
If there is no will in place to ascertain and determine which family member receives what, some family members may feel left out and hire a lawyer to obtain what they feel is their right or share. Succession laws are inherently complicated and lengthy, not to mention tricky. It is far better, cheaper, and effective to hire a lawyer to draft a valid will rather than hire one to start and sustain a legal fight.
6. IF YOUR PARTNER IS GULLIBLE OR INDISCREET, YOUR CHILDREN MAY NOT RECEIVE THEIR FAIR SHARE:
If your surviving partner is not good with money management, they may waste or lose or mismanage your legacy on needless expenses, wrong advisors, or bad investment ideas. A consequence of this would be that your children may struggle financially when this could easily have been avoided. A WILL puts the power in your hands to allocate and secure funds to your children to ensure their financial well-being. There are numerous other factors, which make it absolutely necessary for a prudent citizen to draw up a Will. An entire life of hard-work, savings and investments come to a naught in the absence of succession planning. Hence the irony of a life WELL LIVED, YET ALL LOST.
Do you wish to write a will? Have you forgotten your holdings of shares that you had once invested in?Have you lost touch with your shareholdings because you changed addresses in the past?
Are you a beneficiary, or legal heir, who is not sure if or if not you have inherited shares? Do you hold physical share certificates? It may be time for you to call one of our Advisers at 8291538033 and explore and understand what we can do for you.
LAW OF ESCHEAT- AN OVERVIEW, By manish bhojwani
LAW OF ESCHEAT OR BONA VACANTIA
- Adv Manish Bhojwani
INTRODUCTION:
Law of Escheat is the law where the State takes control of the property or assets if a person dies intestate, without any legal heirs and it remains unclaimed for a prescribed time period. This law entrusts the responsibility to the State to take care of the property or assets unless claimed back by the right full owner. This law is applicable not only to immovable property but to stocks, shares, insurance policies, mutual funds and bank accounts. You would imagine a situation where a person has invested money in the shares of a Company that is listed in the stock exchange and after a certain period of time, such person does not claim dividend on those shares or shares are not being dematerialized that remain in physical form and as per the law all these unclaimed rights are transferred to Investor Education and Protection Fund.
There could many reason for such scenario such as a person did not inform any of his/her legal heirs regarding his investment in shares and died without passing on this information, the investment made decades back and the person actually do not realize that he made any such investment, change of address of a shareholder which is not informed to the Company, investment made by father or mother in the name of child which is not known to the child, investments made in the name of family members to avoid taxes and many more.
PROVISIONS UNDER THE LAW:
Article 296 of the Indian Constitution provides that where a right over the property lapses due to want of the rightful owner, such property shall vest in the State. In other words, any unclaimed property or asset without any legal owner shall be taken over by the State. The State is under an obligation to look for a rightful owner and pass the property or assets to him/her.
Section 29 of Hindu Succession Act, 1956 provides that if a person dies intestate without leaving any qualified legal heir then such property share devolve on the Govt. In State of Punjab v. Balwant Singh and Ors.[1], the Hon’ble Court held that:
“Section 29, in our opinion, shall not operate in favour of the State if there is any other heir of the intestate. Indeed, Section 29 itself indicates that there must be failure of heirs. Failure of heirs means the total absence of heirs to the intestate. It is important to remember that female Hindu being the full owner of the property becomes a fresh stock of descend. If she leaves behind any heir either under sub-section (1) or under sub-section (2) of Section 15, her property cannot be escheated.”
Section 125 of the Companies Act provides that all shares of the Company in respect of which dividends have remained unclaimed or un-encashed for seven consecutive years or more, are required to be transferred by the Company to the Investor Education and Protection Fund (‘IEPF’) established by the Government of India.
States in India have their own law to deal with properties or assets that are unclaimed or when no legal heirs are available to claim the property or asset. While dealing with an escheat scenario, one must look at the law passed by the respective State.
JUDGMENTS:
The Doctrine of Escheat or Bona Vacantia was established in India by Privy Council in The Collector of Masulipatam v. Cavary Vancata Narrainappah[2] in which it was held that “that when the Crown would take the property as the ultimate heir, it would take it as if it were an ordinary heir ... and have duties to perform ceremonies of the deceased, whose lands were escheated, and also to pay the debts if any to the debtors.” It is imperative to note that for a property or asset to fall under the law of escheat, it must be established, beyond doubt, that no legal heirs or rightful owner is available to claim it. In State of Rajasthan & Ors. v. Board of Revenue & Ors.[3], the Hon’ble High Court of Rajasthan applied the verdict of the Hon’ble Supreme Court in State of Bihar v. Radha Krishna & Ors.[4] in order to claim an escheat, the Govt. has to establish that no legal heirs of the deceased owner are available in the world and it must satisfy all conditions of an escheat.
There are many instances where the Apex Court has dealt with what is covered in ‘property’ when it comes to the law of escheat. In JK Trust v. Commissioner of Income Tax[5] it was stated that “Property signifies every possible interest which a person may acquire”, In Municipal Corporation of Greater Bombay v. Lala Pancham[6], it was held that under the Transfer of Property Act or the Rent Control Legislations, an interest in the tenanted property would fall under the category of ‘Property”. In Narendra Bahadur Tandon v. Shanker Lal[7], it was held that the law of escheat and the term ‘property’ not only covers tangible assets but it must be given the widest possible interpretation with respect to the right or interest of a person.
CONCLUSION:
Recently, it has been reported that Rs. 82,000 crores lying in unclaimed bank accounts, life insurance, mutual funds, provident fund, shares etc. There are mediocre agencies who are taking advantage of this untapped field and now it is time for lawyers to bring some respect to this area of practice which has a great potential not only in terms of earning revenue but contributing toward a society by uniting the people with their abandoned wealth and bringing a small amount of joy in their life.
SOURCES:
http://www.legalservicesindia.com/
[1] AIR 1991 SC 2301
[2] 8 MIA 500
[3] AIR 2008 Raj. 33
[4] (1983) 3 SCC 118 in para 272
[5] AIR 1957 SC 846
[6] AIR 1965 SC 1008
[7] AIR 1980 SC 575