Trapped in bureaucracy: The ordeal of recovering unclaimed shares in India

“Document preparation aside, the way companies and IEPF take all the time in the world with their archaic process and speed post communication is disturbing. My 83-year-old mother had to sign on hundreds of physical documents," says Ghaziabad-based Awasthy, who is still waiting for the transfer of a few remaining dividends, with only a couple of shares left to be transmitted.

Awasthy's experience is far from unique. Countless Indians find themselves entangled in the complex web of unclaimed shares, a financial treasure trove often overlooked or forgotten. The process of reclaiming these assets can be a time-consuming and frustrating ordeal, marked by excessive paperwork, lengthy delays, and a seemingly indifferent bureaucracy.

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The IEPFA (Investor Education and Protection Fund Authority), the government body tasked with managing unclaimed shares, has faced mounting criticism for its sluggish procedures and lack of transparency. While recent reforms have aimed to streamline the process, many investors continue to encounter significant hurdles.

An IEPF official, speaking anonymously, told Mint that the much-anticipated integrated portal, originally scheduled for a February 2024 launch to digitize the claims process, has now been delayed by six months. "Once it goes live, a lot of the manual work we currently do will be digitized, significantly reducing the time required to approve claims," the official added.

The bureaucratic maze

The issue begins with a little-known regulation: If shareholders don’t claim dividends for seven consecutive years, the company transfers both the dividends and the shares to the IEPF, managed by the ministry of corporate affairs. What should be a straightforward recovery process has become a marathon due to outdated procedures and excessive red tape.

The IEPF requires extensive documentation—including death certificates, succession certificates, and indemnity bonds—before processing claims.

Pieyusha Sharma, operations manager at Wealth Finder, an investment retrieval advisory company, highlighted a Securities and Exchange Board of India (Sebi) directive in this context.

“According to Sebi guidelines, companies and RTAs should consolidate all observations and communicate them to shareholders in one go. However, there should be stricter enforcement of this rule to avoid unnecessary delays. Apart from the legal requirements, such as furnishing documents for name changes, succession certificates, death certificates, and indemnity bonds, there needs to be a streamlined process," Sharma explains.

The IEPF typically takes no less than a year to respond after a claim is filed with the necessary supporting documents.

“It is suggested that the timeline to respond on the claim filed should be followed strictly in line with what law says and there must a mechanism of real time tracking of the case of the shareholder. Shareholder must also be given a chance to rectify errors before rejection of the case," says Sharma.

Awasthy, who only had physical share certificates, initially attempted to claim the shares but found the process too complex to navigate.

“Each time I sent the necessary documents, it took 2-3 months to receive a response despite multiple follow-ups," says Awasthy. Feeling lost on how to proceed, a relative recommended she seek advice from Wealth Finder.

“Under their guidance, I submitted all required documents and they explained that incomplete documentation was the main reason for the delay," says Awasthy.

Amendments provide some relief, but gaps remain

Earlier this month, the IEPFA introduced amendments to IEPFA (Accounting, Audit, Transfer, and Refund) Rules, aligning them with Sebi circulars. However, the authority has yet to act on several key proposals it sought feedback on in March 2024.

These proposals included setting a strict timeline for processing claims and delegating the transfer of shares to companies. Under this plan, shares would be transferred back to companies in a reverse corporate action once the companies verify shareholders’ documents, eliminating the need for IEPF verification.

The IEPF official, cited earlier, said that opposition from various quarters has delayed the March 2024 proposals, which have now been put on the back burner.

The endless wait: A common story

For senior citizens, the delays can be particularly disheartening.

An 85-year-old man approached Khagesh Chitlangiya, founder of Jeevantika Consultancy Services, to convert his physical share certificates into demat. "It was awkward having to tell him that the process would take at least 3-4 years. Most IEPF cases involve senior citizens," Chitlangiya says.

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Under existing law, the IEPF must process claims within 60 days of receiving all required documents. In reality, claimants wait far longer, with no recourse if their claims are rejected. According to Sharma, the IEPF often takes over a year to respond and doesn’t provide opportunities to correct errors. “It does not give any chance to rectify errors either in case of rejection. The shareholder starts the process all over again with a new service request number," says Sharma of Wealth Finder.

The delays are largely due to a lack of manpower, says the IPEF official.

Stakeholders are calling for quicker file processing within the authority, as every file passes through at least five different officials after an initial verification by junior staff. "If even one person is on leave or occupied with other tasks, a plethora of files gets stuck," says Ankit Garg, advocate and founder of Garg Law Chambers.

A glimmer of hope

In an effort to address shareholder grievances, the authority holds 'Niveshak Sewak' sessions every Monday at its Delhi office, where a team of five IEPF officers directly communicate with claimants to resolve their queries. These sessions are also occasionally conducted in other cities.

The IEPFA has updated its toll-free number to 14453 and discontinued all email addresses for filing grievances as of 6 September. Claimants are now required to submit their grievances through the upgraded ‘grievance ticketing system’ available on the IEPFA website.

In a gazette notification on 9 September, the IEPF addressed several procedural challenges. A key amendment simplifies the transmission of shares. “Claimants no longer need to produce a succession certificate or court order for the transmission of shares. Instead, a legal heir certificate issued by a revenue authority not below the rank of tehsildar, along with indemnity bonds and a no-objection certificate (NOC) from other legal heirs, will suffice. Probate of a will is also not required unless mandated under the Indian Succession Act, 1925. This is a significant change, as claimants previously had to endure high court and lawyer fees and wait over a year for a court order," says Garg.

For shares valued below ₹5 lakh in physical form and ₹15 lakh in demat form, the legal heir certificate requirement has been waived.

"An affidavit, indemnity bond, and NOC from other legal heirs will suffice. Additionally, if share certificates are lost, an FIR will not be required for values below ₹5 lakh, and a single newspaper advertisement will suffice for shares valued over ₹5 lakh, as opposed to the previous requirement of two ads," adds Garg.

Another relief is the elimination of the surety affidavit requirement for lost shares. “Previously, those providing surety affidavits had to submit notarized identity proofs along with income tax returns (ITRs) from the past few years, which made finding such individuals a challenge. This change is a big relief," says Sharma of Wealth Finder.

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An additional “excellent amendment" mandates that companies obtain special contingency insurance policies to safeguard nodal officers in case of errors in the verification report. “This policy will protect officers if they mistakenly approve a claim for the wrong person. The proposal to delegate the transfer of shares to companies is also a positive step, and it should proceed despite opposition. The regulator should supervise, not execute, these activities," says Chitlangiya.

Still, these are small victories in a system that continues to frustrate many.

“The way Income Tax Department pays interest on refunds to taxpayers in case of delays, the IEPF needs to have a similar provision in the interest of investors," Garg suggests.

The road ahead: Formalizing the recovery process

While some claimants turn to third-party agents to navigate the maze, others have found these intermediaries to be unreliable.

Kota-based Amandeep Singh only learned about his grandfather’s unclaimed shares when he received a call from an agent. “I was pleasantly surprised to discover my grandfather had over ₹1 crore worth of unclaimed shares. I have no idea how the agent found our address or contact details, but I thank my stars it happened. Now, I’m helping my father recover them in his name," says Singh.

A lack of awareness remains a significant challenge. While the IEPFA portal allows claimants to track unclaimed shares for free, many shareholders or their legal heirs are unaware of the investments. The IEPFA’s latest annual report estimates that 120 crore shares were lying unclaimed as of March 2023, and an IEPFA official noted that only 1% of these have been released so far.

Third-party companies reaching out to shareholders help many discover long-forgotten assets. While some agents charge hefty fees, others provide genuine assistance.

Singh himself sought help from Jeevantika Consultancy Services. “I started the recovery process in 2017 with their assistance and am still awaiting the dividends. Jeevantika hasn’t charged me anything so far. I will pay a small percentage of the recovered shares and dividends once I receive them," he says.

Abhinav Jain, however, had a less positive experience. After his mother informed him about her demat account, he approached multiple agents. “Everyone quoted hefty fees, and even after paying, there was no clear timeline for when we’d receive the shares in our demat account. I decided to do my own research and file the claim, but the process laid out by the government is too complex and usually requires the help of agents," Jain explains.

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Industry stakeholders suggest creating a formal ecosystem where IEPF recognizes specific firms to assist with share recovery. “Formalizing the ecosystem and setting standardized fees would help curb unscrupulous agents, reduce systemic burden, and create jobs," says Chitlangiya of Jeevantika Consultancy Services.

In the meantime, thousands of shareholders like Awasthy continue to wait, caught in a slow-moving system that promises change but delivers little.