SEBI set to amend rules on unclaimed shares

The Securities and Exchange Board of India (SEBI) is likely to come out with a circular either clarifying or amending the listing agreement, after various large corporates and market intermediaries wrote to the regulator on confusion over a clause related to unclaimed shares, say sources.

The stock market regulator had come out with a circular on December 16, 2010, to amend the listing agreement. Among the clauses was one which detailed the procedure to deal with unclaimed shares in the physical form.

Companies have been asked to dematerialise and put them in a suspense account.

But ambiguous wording is said to have created uncertainty over the exact procedure to be followed in the case of unclaimed physical shares.

Among the issues cited is that Sebi asked that the voting rights on such shares be frozen till the rightful owner claims the shares.

This seems contrary to the Companies Act, which states that voting rights can only be frozen if the shareholder has borrowed money on the shares and is yet to pay it back.

A number of representations from various organisations including registrars and company secretaries as well as large corporates have been made to the regulator, according to people familiar with the matter. A clarification or amendment is expected soon.

The circular is also unclear as to if it extends to shares issued only in public issues or to those issued as part of corporate actions such as mergers or splits.

There is a lack of clarity over whether it extends only to share certificates which are unclaimed at the time of the public issue or also to other cases such as certificates which are not posted by the company on account of an ongoing litigation over their ownership.

Registrars to the issue have been asked to send three reminders to the shareholder’s address, but corporate actions such as stock splits do not have a registrar.

Additionally in companies which came out with their public issues prior to the dematerilisation era, the address would have to be obtained from the original application form.

To locate physical application forms for public issues which took place decades ago would be difficult, said one person adding also that addresses could have changed since then.

“It is not clear how the unclaimed shares would be reflected in the shareholding pattern, and the wording of the clauses of the application forms too is not clear .We are hoping that SEBI will come out with a clarification sometime soon.,” said the compliance officer at a large corporate.

“We have made a representation to the regulator and hope for a clarification soon,” said another.

SEBI has clarified informally on some of these issues, stating that the clause would extend to shares issued as part of corporate actions but not to those under litigation in court. The freeze on voting rights would remain, say sources.

While there was no data on the total number of dematerialised shares which are unclaimed, as much as 16% of the total number of shares issued are still in physical form, according to data compiled from over 4,000 companies who have filed information on dematerialisation.