What powers does a nominee of an incapacitated person have?

Imagine finding yourself in a situation where you cannot manage your investments due to illness or accident. Suddenly, the need for cash arises, but you’re incapacitated, unable to initiate transactions. Even worse, your nominee, typically designated to handle such matters in your absence, finds themselves powerless. Thankfully, the Securities and Exchange Board of India (SEBI) has taken a groundbreaking step forward. Its recent Consultation Paper on Nominations proposes reforms that empower incapacitated investors and their families, marking a significant shift in the Indian financial landscape.

Current scenario

This paper delves into nominations, but with a crucial twist: protecting the rights of nominees while the investor is still alive. Traditionally, nominees only came into play upon the investor’s passing. Now, SEBI proposes recognizing an “Incapacitated Person” – someone unable to make sound financial decisions due to physical or mental limitations – and their nominee’s role while they are alive.

Currently, managing an incapacitated loved one’s wealth often translates to a frustrating court battle. Obtaining a Guardianship Certificate through ‘The Rights of Persons with Disability Act, 2016’, and the ‘Mental Healthcare Act, 2017’, is complex and restrictive. Even if a nominee exists, their rights remain dormant, further complicating matters. Currently, the Court does not allow the transfer of assets of an incapacitated person even after obtaining a Guardianship Certificate and the court controls the usage of assets. However, SEBI has proposed to allow the transfer of assets and authorization to conduct transactions to the nominee if he/she obtains a Guardianship certificate.

SEBI’s Proposed Solutions

SEBI proposes simplifying nominations for both temporarily and permanently incapacitated investors. Key reforms include:

• Granting nominees the power to manage transactions: Incapacitated investors can appoint nominees to manage their wealth even when incapacitated investors are alive.
• Allowing single or multiple nominees for transactional purposes: Earlier, only up to 3 nominees were allowed to be appointed. But now SEBI proposes to allow more than three nominees.
• Introducing Power of Attorney (POA) provisions for incapacitated investors with contractual capacity: Incapacitated investors who are competent to enter into a contract can appoint a nominee and provide a right to manage wealth to the nominee through a Power of Attorney.
• Requiring Guardianship Certificates for those lacking contractual capacity: In cases where incapacitated investors are not legally competent to enter into a contract, they can assign the right to manage wealth through Guardianship Certificates. In such a case, the nominee has to obtain a Guardianship certificate from the court.
• Stringent authentication measures to safeguard authorization processes: SEBI needs to ensure a stringent authorization process for appointing POA holders or for authorizing nominees to manage the wealth of incapacitated persons. It may ask to provide doctor’s certificates or in-person verification of the nominee and incapacitated person.

SEBI’s proposals mark a bold departure by enabling nominees to manage assets. However, concerns about potential manipulation exist, especially regarding the type of POA authorized.

In the current scenario, too, a regular POA can be created by getting the documents notarized by a notary, or it may be registered with the District Revenue Authority. However, in the case of these general POAs, there is a risk of being subject to manipulation as it does not ensure the personal presence of both parties. 

The way forward lies in Registered POAs. Unlike General POAs, these offer greater security and minimize manipulation risks, ensuring adherence to SEBI’s recommendations. In this case, the details of the incapacitated person, nominee and POA documents have to be registered in the records of the Revenue Authority and a registration number is generated from the same. The authenticity of a Registered POA can be verified from the Revenue records anytime.

Conclusion

SEBI’s Consultation Paper signifies a progressive move towards empowering investors and streamlining asset management. By embracing these reforms, we can create a more inclusive and secure financial environment for all, especially those facing unforeseen circumstances. Let’s work together to ensure the effective utilization and protection of assets belonging to incapacitated individuals, paving the way for a brighter financial future for all.