Many legal heirs, one demat account: What happens to shares when family members disagree?

The situation can become worse when family members refuse to agree on who should receive the shares, and it can become even more complicated if there are multiple heirs and, among them, one wants to transfer the shares in his or her demat account, another wants equal division of the shares, and the third person may question the ownership of the shares.

Before attempting to transfer or sell inherited shares in such circumstances, it is essential to be aware of the differences between nomination, legal heirship, and succession.

So, what happens to the shares when multiple legal heirs disagree? Does the nominee automatically become the owner? Can one heir transfer or sell the shares without the others’ consent? What happens if there is no Will or nomination? And when can a court order become necessary?

Here’s what investors should know.

One demat account, multiple heirs: Who controls the shares after death?

The nominee on the demat account will legally control the shares until the succession process is completed. If there is no nominee, then the demat account is frozen until the rightful heir presents the succession certificate / probate and securities under such demat account are transmitted to such heir.

Legal heirs disagree on shares: Can one heir force a sale?

If there are multiple legal heirs and assuming all of them have inherited the asset equally, they would inherit the shares in equal proportion and will be free to deal with their inheritance in the manner that they desire. 

A legal heir cannot force the other to dispose of their part of the shareholding. 

If the deceased investor has not left a Will, how are shares in the demat account distributed among multiple legal heirs?

“The CDSL and NSDL transmission process requires a legal heir to submit to the Depository Participant (DP), in relation to a demat account, a transmission request form along with supporting documents, including a notarised affidavit from each legal heir claiming legal ownership over the demat account and a succession certificate or probate or a will or letter of administration or court decree,” said Shabnam Shaikh, Partner at Khaitan & Co.  

Thereafter, the DP would transmit the securities to the demat accounts of the legal heirs per the documentation so submitted. 

Nominee or legal heir? Who really owns shares after the holder’s death?

A nominee holds the demat account in a fiduciary capacity for and on behalf of the legal heirs of the deceased. 

“The Supreme Court in Shakti Yezdani v. Jayanand Jayant Salgaonkar settled that a nominee is merely an interim holder or trustee — not the beneficial owner — and holds the shares and attendant rights (including dividends and voting rights) in trust on behalf of the legal heirs until the succession is settled,” according to Shaikh.  

Nominee vs legal heirs: Can shares be transferred if family members object?

Yes, the nominee can get the shares to their demat account, albeit in a fiduciary capacity. In fact, the DP would require the nominee to sign a declaration acknowledging this. 

Thus, the nominee cannot treat the credit of shares to their demat account as their own. 

“If there are other legal heirs, the remedy for the other heirs is thereafter against the nominee and not the DP and can be settled per civil proceedings (succession certificate, probate, etc.),” stated Shaikh. 

One heir refuses to sign: Can others still transfer inherited shares?

Practically, the legal heirs will be unable to proceed without the cooperation of all of them. The DP would require the above-mentioned documents to proceed. 

“Therefore, in order to move forward, the legal heirs would have to approach the court of appropriate jurisdiction, procure a succession certificate, and then complete the succession process,” according to Shaikh. 

One heir sells deceased’s shares without consent: What can other heirs do?

If legal heirs wish to protect their interest, they should immediately send a legal notice to the company (for private company shares) flagging the dispute, and simultaneously seek an interim injunction from a civil court restraining the nominee/heir from selling or dealing with the shares. 

Now, if the shares have already been sold, they should file a civil suit for recovery of their proportionate proceeds, and where the seller is a nominee, lodge a criminal complaint for breach of trust.

Will, nomination or joint demat? Documents investors should prepare

An investor must have a Will detailing the inheritance of the contents of a demat account and should ideally map the nomination of such demat account to the legatee mentioned under the Will. 

Although administratively it may be cumbersome, if the investor envisages disputes amongst the legal heirs, it would be worthwhile to consider having different demat accounts having the same (or intended) number of securities with nomination aligned with the intended legatees. 

This will help in smooth inheritance of securities amongst different legal heirs without any issues.

Shares stuck in a family dispute? Know who gets the benefits

During the interim period while legal heirs are disputing ownership, dividends declared on the deceased’s shares go unclaimed (since the linked bank account is typically frozen) and are moved by the company to an Unpaid Dividend Account under Section 124 of the Companies Act, 2013; bonus shares and stock-split shares are automatically credited to the deceased’s Demat account and form part of the estate. 

When a company declares a dividend but it hasn’t been paid or claimed by any shareholder who is eligible to receive the dividend within thirty days of the declaration date, the company must transfer the entire amount of the unpaid or unclaimed dividend to an Unpaid Dividend Account that it will open in any designated bank within seven days of the thirty-day period ending.

“The critical risk is that if dividends remain unclaimed for 7 consecutive years, both the unclaimed dividends and the underlying shares themselves (including any bonus shares) are mandatorily transferred to the Investors Education and Protection Fund (IEPF), making recovery significantly more difficult,” said Shaikh.  

This should be a strong incentive for disputing heirs to resolve the succession expeditiously or, at minimum, ensure dividends are claimed within the 7-year window.

Deceased person’s demat account: Biggest mistakes heirs should avoid

Some of the aspects to bear in mind while dealing with a demat account are as follows:

Each heir requires their own demat account to have the securities transmitted from the deceased’s demat account.

No nominee would lead to a frozen account: In order to access the account, the heirs would have to obtain a succession certificate, probate or letters of administration – requiring cooperation or a court order. Hence, families should see to it that there is a nomination in place.

The nominee is a trustee, not an owner.

Unauthorised sale of shares in the demat account by the nominee may result in a civil suit for recovery, injunction and potentially criminal breach of trust.

Send a legal notice early on if a dispute is imminent and seek an interim injunction from the court to prevent dealing in shares.

Corporate actions in a company continue regardless – hence, dividends, if declared, and bonus if issued, will be auto-credited to the deceased’s bank / demat account. 

If the dividends are unclaimed for 7 consecutive years, then the same is credited to IEPF. Reclaiming the dividends from IEPF is a long-drawn process; hence, it will be in the interest of the legal heirs to resolve the disputes and claim dividends before then.

Disclaimer: This article is for informational purposes only and should not be construed as investment, financial, tax, or legal advice. Any illustrations, examples, or return projections used in this article are for explanatory purposes only and do not guarantee actual investment outcomes. The views and opinions expressed by experts quoted in this article are their own and should not be considered investment recommendations. Readers should consult a qualified professional before making any financial decisions. 

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