Mumbai: India’s capital market regulator, the Securities and Exchange Board of India (Sebi), has asked the Union government to transfer assets in at least 617,000 frozen demat accounts to a government-appointed commissioner for possible public use, said a senior Sebi official.
The frozen accounts, containing Rs9,589 crore of assets, are with the two national depositories—the Central Depository Services (India) Ltd (CDSL) and the National Securities Depository Ltd (NSDL).
The request from Sebi came during two meetings on 18 June and 10 July, between the Sebi board and finance minister Pranab Mukherjee, who had in February said that the Union government would amend the Depositories Act to access such frozen assets.
Unlocking value: The Sebi headquarters in Mumbai. The regulator and the finance ministry have been discussing the issue for two months. Abhijit Bhatlekar / Mint
“In the recent June and July meetings with the finance ministry, we have discussed the issues related to dealing with the assets lying in frozen demat accounts,” said the Sebi official, who did not want to be identified.
NSDL held 522,000 frozen demat accounts worth Rs8,400 crore, while CDSL had Rs1,189 crore in 95,000 such accounts as of 30 June.
”There has been a discussion with the government regarding the ways to deal with assets in frozen demat accounts, but I am not aware of any specific proposal that has been made by Sebi,” said R. H. Patil, chairman of NSDL.
A demat—short for dematerialized—account is an electronic account in which an investor’s shares, debentures, bonds and government securities are held. It allows investors to trade securities with limited paperwork and delays, and removes the need to hold securities in their physical form.
Accounts are treated as inactive, or frozen, if there has not been any debit or credit for at least seven years. Such accounts could belong to investors who have not furnished their permanent account number (PAN)—issued by the income-tax (I-T) department—or those who have died with no one to legally claim the assets.
If accepted, these unclaimed assets will be transferred to the Consolidated Fund of India (CFI) for public use.
All revenue collected by way of taxes such as income tax, central excise, customs and other receipts such as non-tax revenues are credited to CFI, which is maintained by the Union government. All loans raised by the government are also credited into this fund.
The Sebi official said that amendments would be required in securities laws to transfer the frozen demat account assets and that a draft Bill had already been prepared by finance ministry. “The whole process will take at least six months.”
According to Sebi, the CFI commissioner may be required to issue notices before reaching a reasonable position on the status of the frozen accounts. Once the securities in those are declared as unclaimed, they will be surrendered to the government.
“The government will bid the unclaimed securities for sale, and the proceeds from the sale would be transferred to the CFI,” added the Sebi official.
In May last year, then finance minister P. Chidambaram had directed the Central Board of Direct Taxes (CBDT) to provisionally attach securities in the frozen demat accounts in cases where the investors did not comply with the PAN requirement. Following a probe into at least 650,000 frozen demat accounts, the I-T department in May this year found at least Rs1,200 crore that was unaccounted for.
Meanwhile, the depositories have been taking steps to alert all demat account holders to claim their assets in frozen accounts. “For ensuring PAN compliance, NSDL has made advertisements in newspapers and television channels, and distributed pamphlets among investors during the investor depository meets organized across India,” said Gagan Rai, managing director and chief executive officer of NSDL.