Indemnity Bond Not Required When Succession Certificate Is Filed Under IEPF Rules: Gujarat High Court

The Gujarat High Court on 9 March held that where a claimant has already furnished a valid succession certificate under the Investor Education and Protection Fund (IEPF) Rules for transfer of shares, an indemnity bond cannot be insisted upon.

Justice Hemant M Prachchhak observed that the requirement to furnish an indemnity bond arises only in the absence of documents such as a succession certificate, and authorities cannot impose additional conditions not contemplated under the Rules. He noted:

“The said shares constitute the lawful property of the petitioner and, therefore, the petitioner cannot be deprived of the same due to an unwarranted and erroneous interpretation of the Rules by the respondent authorities.”

Daksha Nanavati is the legal heir of the original shareholder of Navin Fluorine International Limited, whose shares were held in physical form. After her mother passed away in 2012, Nanavati obtained a succession certificate in 2021 and applied for transmission of the shares in her favour.

When she applied for the transfer, the concerned authority asked her to submit the required documents. Nanavati submitted all the documents, including the succession certificate. Even though the value of the shares was below Rs. 5 lakh, the respondents insisted that she submit an indemnity bond within a stipulated time.

Nanavati argued that the requirement did not apply to her case. The Nodal Officer later confirmed that her documents were in order and asked her to file Form IEPF-5 for release of dividend and shares from the Investor Education and Protection Fund Authority. Nanavati filed the form as directed.

However, the authorities did not transfer the shares in her name. Aggrieved by their refusal to process the transmission, Nanavati approached the High Court.

Nanavati submitted that under Rule 2.2 of the IEPF Rules, authorities require an indemnity bond only when a claimant does not produce documents such as a succession certificate. Since she had already submitted a valid succession certificate under Rule 2.2(a), the requirement under Rule 2.2(b), including submission of an indemnity bond, did not apply.

The Nodal Officer argued that the shares had remained unclaimed for seven consecutive years, and the company therefore transferred them to the Investor Education and Protection Fund in 2021 under Section 124(6) of the Companies Act. The officer submitted that the authorities had informed Nanavati of the procedure to claim the shares. During processing of her claim, the system generated a requirement for an indemnity bond under the IEPF Rules and prescribed procedure, and her failure to submit it justified rejection of the claim.

The Bench observed that Nanavati had met all the required conditions and submitted the necessary documents. It noted:

“A plain reading of Rule 2.2 makes it abundantly clear that the requirement of furnishing documents mentioned in Clause-b arises only in the absence of the documents specified in Clause-a.”

Since Nanavati had already submitted the succession certificate as required under Clause-a of Rule 2.2, the Court held that “there was no justification whatsoever on the part of the respondent to insist upon the petitioner to submit an indemnity bond.”

It further observed:

“Once the petitioner has complied with the requirements prescribed under the Rules, the respondents cannot impose additional conditions which are not contemplated therein.”

Accordingly, the Court allowed the petition and directed the concerned authority to process Nanavati's claim and transfer the shares in her name without insisting on an indemnity bond.

For Petitioner: Senior Advocate SI Nanavati and Advocate Aditya A Gupta

For Respondents: Advocates Ankit Shah and Parth H Saluja