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Revamping the Nomination Facility: Analyzing SEBI’s Proposed Nomination Reforms

[Kushagra Keshav and Sanidhya Somvanshee are B.A., LL.B. (Hons.) student at National Law University Odisha]


On 2nd February 2024, the Securities and Exchange Board of India (SEBI) released a consultation paper proposing revamps and reforms to the nomination facilities available for securities and mutual fund holdings. The objective of these reforms is to reduce unclaimed assets in the securities market and strengthen the investor's protection. The nomination facility in the Indian securities market has existed for a long time, but minimal investor awareness and administrative complexities can lead to an influx of unclaimed assets.

It is in this context that SEBI’s recent consultation paper assumes significance. Reforms like e-nomination, higher nominee limits, etc. are aimed at strengthening investor protection and reducing unclaimed assets. However, there should be a fine balance between improving investors' protection and maintaining sufficient guardrails against misuse.

This article aims to explain the key proposals put forward by the consultation paper, analyze these proposals, examine the critical considerations, and provide recommendations to strengthen investor protection and market integrity.

Key Proposals


The consultation paper proposes to introduce e-nomination facilities which will help ease the making, changing, and cancellation of nominations in mutual fund units and demat accounts. The proposed reforms seek to do away with paperwork and introduce ‘Digital Signature Certificates’, ‘Aadhar-based e-Signatures’, and ‘Two-factor/multi-factor’ authentication like biometrics, OTP, etc. Moreover, the paper suggests that if nomination is to be done via thumb impressions, then two independent witnesses must be present during the entire process.

The use of digital authentication establishes the authenticity of the investor and prevents the possible denial of nomination via online methods. Additionally, the consultation paper has also proposed that investors while making the nominations will have to provide personal details and contact information of the nominees. Through this, it will be easier and convenient for the regulators, mutual fund units, and other entities to establish contact with the nominees. This can facilitate the timely transmission of assets to legitimate nominees.

Higher Nominee Limit

Moreover, the consultation paper proposes to increase the current limit on the number of nominees from 3 to a higher number like 99 or 999 in order to address ordinary requirements of individual investors. It appears that rationale for such a proposal is to provide investors with some flexibility in nominating individuals based on their circumstances and preferences. For example, investors having joint families, multiple dependents, etc. might find the proposed framework suitable. The investors can also specify the percentage share of nominees and if this percentage is not specified by the investor the securities will be equally divided among the nominees itself.

Incapacitation of the Investors

The consultation paper also seeks to introduce a provision whereby an investor while opening his account or while selecting nominee(s), may specify that upon their permanent or temporary incapacitation, the nominee(s) be authorized to conduct transactions in the demat/mutual fund account on his behalf. This devolution of authorization is based on the number of nominees appointed by the account holder, lest a single nominee is appointed then such a nominee will be directly authorized to do the transactions of securities.

In the paper two eventualities of incapacitation are put up for consideration- (a) if the investor has a legal “capacity to contract” then a Power of Attorney or authorization in favour of the nominee will suffice (b) in case the investor loses “capacity to contract” then to claim authorization to undertake transactions on behalf of the investor the nominee would be required to produce a medical certificate declaring the original investor’s incapacitation along with other proofs like biometrics and registrar/depository verification documents.

This facility could be intended to ensure continuity in operations of the Demat/mutual fund account when the original investor is incapacitated. By utilizing this facility an investor gets the option to pre-select a nominee who shall be granted the authorization to transact on behalf of the original investor.

Potential Implications and Recommendations

E-nomination and Security

The proposal to bring an e-nomination facility and authenticate it through e-KYC (Know Your Customer) and digital certificates will make it convenient for the investors to nominate, this will also facilitate the investors to choose their nominees securely. But in the age of generative artificial intelligence, even a secure framework like e-KYC is prone to certain vulnerabilities, the regulators should prefer features like video KYC and ensure that these authentications are reinforced with multiple authentications. SEBI should also consider bringing an extra layer of security like biometric authentication for High-Net-worth Individuals (HNIs) and persons involved in high-value transactions. Moreover, the collection of personal information and details could raise privacy concerns.

Recently, news of the leaking of personal information like Aadhar card details and passport numbers from the COWIN database raised more suspicion on data security and protection. SEBI should establish robust data protection measures and a framework that ensures nominees’ information is securely stored. This proposed reform should be implemented after due consultation with the Depositories, and SEBI should ensure that depositories have relevant infrastructure such as storage servers because it is imperative that sudden influx of data will cause logistical issues like server load for the depositories and can hamper the said reforms and overall experience of the investors.

Multiple Nominees and Possible Conflicts

In Shakti Yezdani & Anr. vs Jayanand Jayant Salgaonkar & Ors. the Supreme Court held that the nominee of any deceased shareholder is not entitled to absolute ownership because the object of nomination provision under Section 72 of Companies Act 2013 and Bye-Law 9.11.1 of the Depositories Act 1996 is limited i.e. to ensure there exists no confusion regarding the legal formalities in the event of holder’s death and to protect the securities from litigation until the legal heirs establish their rights. The court gave primacy to the succession laws and ruled that the nominees have a limited role. This stance of the Supreme Court was further strengthened in  Arun Oswal Vs. Pankaj Oswal & Ors. wherein the nominee was held to be a custodian or trustee of securities of a deceased person.

From the above-mentioned cases, it is apparent that the object of nomination provisions would not be served by having such a broad pool of nominees. Avoiding unnecessary litigation would not materialize as chances of conflict of interest would become more prevalent than they are now. Moreover, on one hand, increasing the maximum number of nominees to such an extent will give investors more choices, but on the other hand, it will also present administrative difficulties like gathering, storing, and securing securityholder’s data will fall more on depository partners like NSDL and CDSL. Managing nominees’ data will act as icing on the cake. However, in the unlikely case if the shareholder fails to specify the percentage shares of these many nominees, the burden of depositories will become onerous.

Transacting Autonomy and Control

Proposals regarding enabling the investor to pre-select nominee(s) to undertake transactions on their behalf in the event of his permanent or temporary incapacitation must be implemented after bringing strict guidelines such as a panel of doctors’ certificate confirming investor incapacitation and in-person verification by the depository or registrar. The transactions done by the nominee should be restricted to a certain threshold, only essential transactions should be allowed to safeguard the interest of the investor. The SEBI should also take inspiration from certain foreign legislations, like in Australia there is a protective framework under Section 32 of Powers of Attorney Act 1998 (Qld) whereby the principal can exercise a certain level of control over the actions of the attorney such as his transaction rights and limits.

It is desirable that the investors be provided flexibility as per their needs and circumstances to set applicable limits on transaction amounts and appropriate safeguards against any probability of misuse of funds/assets when the nominee(s) are given authorization to transact. Such appropriate limits, customizable and mandated by the investor will aid the existing provisions directed towards investor protection.



SEBI took a progressive step in addressing the concerns regarding long-standing unclaimed assets by proposing reforms in the existing nomination facilities like e-nomination, greater nominee limits, and devolution of transaction rights to the nominee during the incapacitation of the investor. Aspects such as data privacy, system capacity of intermediaries, and avoiding unnecessary legal conundrums amongst the nominees call for due deliberation. With appropriate guardrails and guidelines and prudent participation of all the stakeholders can bring about meaningful improvements. It is a fact that no reform can address all the challenges in one go, therefore in light of the existing predicament a balanced and phased approach is ideal. Regulators must ensure that oversight safeguards and tight authentication mechanisms complement the reforms pushing nomination flexibility and transaction ease to investors.

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