Background pertaining to the current provisions relating to IEPF
Under section 205C of the erstwhile Act, certain amounts were prescribed which were required to be transferred to IEPF. However, under the Act, 2013 read with the IEPF Rules, certain additional amounts have been prescribed that shall be credited to the IEPF Fund.
Under the erstwhile Act, there was no requirement to transfer the shares for which the dividend is unpaid or unclaimed to the IEPF. However, with the enforcement of the corresponding section, i.e. 124 (6) under the Act, 2013, every Company is mandatorily required to transfer the underlying shares for which the dividend has remained unpaid or unclaimed for a consecutive period of seven years within a period of thirty days of such shares becoming due to be transferred to the Fund.
Along with the Principal rules, MCA has time and again passed amendment acts to bring clarity in the provisions and the process to be followed for the same.
MCA vide notification no S.O. 2866(E) dated 5th September, 2016 has enforced section 124 and 125 of the Act, 2013 (except for the sub-sections which were already enforced by MCA on 13th January, 2016), along with another notification of the same date, enforcing the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (‘Principal Rules’).
This was followed by amendment rules dated 28th February, 2017, which were further amended by MCA vide another Notification dated 13th October, 2017, called as The Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Second Amendment Rules, 2017 (“Second Amendment Rules”) effective from 13th October, 2017.
This amendment was followed by a MCA Circular dated 16th October, 2017 which provides for certain details on the Second Amendment Rules.
In continuation to its move to make changes in the IEPF Rules, MCA by notification dated 14th August, 2019 notified the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Second Amendment Rules, 2019 (‘Amendment Rules’). The Principal Rules, Amended Rules, Second Amendment Rules and Amendment Rules are collectively referred to as IEPF Rules.
The various timelines defined under the section read with rules
|
Activity |
Timeline |
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Declaration of dividend in the general meeting by shareholders |
X day |
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Transfer of amount declared to separate bank account |
Within X+5 days |
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Payment of Dividend to the shareholder |
Within X+30 days |
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Where dividend is declared but not claimed within 30 days from declaration, then transfer unclaimed/unpaid amount to a Unpaid Dividend Account |
Within X +30+7 days |
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Filing in e-Form IEPF-2 the statement containing details as section 124 after identifying the unclaimed amounts as on the date of holding AGM. |
Within 60 days of holding AGM. Statement in Form IEPF-2 every year till the completion of 7 years period. |
|
Transfer remaining unclaimed/unpaid in Unpaid Dividend Account including shares to IEPF |
Within 30 days After (X+30+7) days + 7 years The Company will receive one copy of the challan filed in triplicate with specified Banks |
|
Filing of e-Form IEPF-1 |
Within 30 days of submission of challan |
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Transfer shares whose dividend is unclaimed/unpaid in terms of Rule 6 (3) of IEPF Rules. e-Form IEPF-4 to be filed within 30 days of effecting transfer of shares to the Fund containing details of such transfer |
Within 30 days of (X+30+7) days + 7 years + 30 days |
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e-Form IEPF-3 to be filed in case of shares and unclaimed/unpaid amount not transferred to the Fund due to order from a court or tribunal or statutory authority restraining such transfer. |
Within 30 days of end of financial year, furnishing details of such shares and unpaid dividend. |
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e-Form IEPF -6 to be filed |
Within 30 days of end of financial year, stating therein the amounts due to be transferred to the Fund in next financial year. |
Provisions of Section 124 of the CA, 2013
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(1) |
Dividend declared but unpaid or unclaimed: Dividend declared by company but has not been paid or claimed within 30 from the date of the declaration |
Co shall within 7 days from the expiry of said 30 days transfer such amount to unpaid/ Unclaimed Dividend Account Co shall within a period of 60 days after holding annual general meeting as per provision of section 96 of co act and every year thereafter till completion of 7 years identify the unclaimed amount as on the date of closure of financial year identify the unclaimed dividend amount and separately file information of unclaimed dividend in form IEPF-2 for each of the previous seven years :-
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(2) |
Company required to declare the data of unclaimed/unpaid dividend: The company shall, within a period of ninety days of making any transfer of an amount under sub-section (1) to the Unpaid Dividend Account, |
prepare a statement (containing the names, their last known addresses and the unpaid dividend to be paid to each person) and place it :
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(3) |
Penalty for default in transfer: If any default is made in transferring the total amount referred to in sub-section (1) or any part thereof to the Unpaid Dividend Account of the company, |
it shall pay, from the date of such default, interest on so much of the amount as has not been transferred to the said account, at the rate of twelve percent per annum and the interest accruing on such amount shall ensure to the benefit of the members of the company in proportion to the amount remaining unpaid to them. |
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(4) |
Right of investor to apply for refund: Any person claiming to be entitled to any money transferred under sub-section (1) to the Unpaid Dividend Account of the company may apply to the company for payment of the money claimed. |
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(5) |
When to transfer and how to transfer unpaid/unclaimed dividend by company to IEPF: Any money transferred to the Unpaid Dividend Account of a company in pursuance of this section which remains unpaid or unclaimed for a period of seven years from the date of such transfer shall be transferred by the company along with interest accrued, if any, thereon to the Fund established under sub-section (1) of section 125 |
the company shall send a statement in the form IEPF-1 within 30 days from the amount becoming due to be credited to the fund for the details of such transfer to the authority which administers the said Fund and that authority shall issue a receipt to the company as evidence of such transfer. |
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(6) |
When to transfer and how to transfer underlying shares by company to IEPF: All shares in respect of which dividend has not been paid or claimed for seven consecutive years or more shall be transferred by the company in the name of Investor Education and Protection Fund along with a statement containing such details as may be prescribed: |
Co shall transfer shares in the demat account of the Authority within period of 30 days of such share becoming due to be transferred to the fund by following the procedure mentioned in the Rule 6 |
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Right of shareholder/or any rightful owner to claim refund of shares: Provided that any claimant of shares transferred above shall be entitled to claim the transfer of shares from Investor Education and Protection Fund in accordance with such procedure and on submission of such documents as may be prescribed. Explanation. - For the removal of doubts, it is hereby clarified that in case any dividend is paid or claimed for any year during the said period of seven consecutive years, the share shall not be transferred to Investor Education and Protection Fund. |
Any person whose shares, unclaimed dividend, matured deposits, matured debentures, application money due for refund and etc can claim from the authority by submitting an online application in the form IEPF-5 |
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(7) |
Penalty on Company and every officer who is in default: If a company fails to comply with any of the requirements of this section, |
-company shall be liable to a penalty of one lakh rupees and in case of continuing failure, with a further penalty of five hundred rupees for each day after the first during which such failure continues, subject to a maximum of ten lakh rupees and -every officer of the company who is in default shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of two lakh rupees. |
Procedure to transfer demat shares to the IEPF demat account
Under the IEPF Rules, companies were required to sign delivery instruction slips as one of the steps to transfer the demat shares, however, the Amended Rules have simplified the transfer process for shares held in demat form. As per the said rules, companies are required to inform their depository by way of a corporate action where the shareholders have their account and thereafter the depository shall effect transfer in favor of the demat account of the IEPF.
Procedure for transferring physical shares to IEPF demat account
For effecting transfer of shares held in physical form, the following steps are to be taken by the company:
1. Company to authorize the CS or any other person to make application on behalf of the shareholder, for issuance of new share certificates;
2. Company will then on an application made by such authorized person, issue new share certificates specifically stating on the face of it that the share certificate is “Issued in lieu of share certificate no. …….” and is being issued for the purpose of transfer to IEPF;
3. Recording the particulars in the register maintained for that purpose which shall be as per Register of Members or any separate register maintained for that purpose;
Company to inform the depository by way of a corporate action to convert the new share certificates into demat form and transfer in favor of the IEPF Authority.
Circumstances, when the shares cannot be transferred to the IEPF even after the period of seven years, have elapsed
The circumstances when the shares even after the being left with the company for more than seven years may not be transferred to the IEPF Authority:
- In case the beneficial owner has encashed any dividend warrant during the last seven years; or
- There is a specific order of Court or Tribunal or statutory Authority restraining any transfer of such shares and payment of dividend; or
- The shares are subject to pledge or hypothecation under the Depositories Act, 1996.
Circumstances where the IEPF Authority is required to surrender the shares
Here again there are two circumstances under which the IEPF Authority is required to surrender the shares. These include:
- In case the company whose shares or securities are held by the Authority is being wound up; or
- In case the company whose shares or securities are held by the Authority is getting delisted, the Authority shall surrender shares on behalf of the shareholders in accordance with the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations. 2009.
The Authority is mandatorily required to surrender the transferred shares on the second occasion whereas it may or may not surrender the same when the company is being wound up.
Further note that the proceeds realized from such shares shall be credited to the specified account of the IEPF Authority opened with Punjab National Bank and SBICAP Securities Limited and a separate ledger account shall be maintained for such proceeds.
Amounts that can be claimed by an investor from the IEPF fund
Rule 7 (1) of the IEPF Rules provides that the following can be claimed by the persons for refund
- Shares transferred to IEPF suspense account;
- Unclaimed dividend;
- Matured deposits and matured debentures;
- Application money due for refund or interest thereon;
- Sale proceeds of fractional shares;
- Redemption proceeds of preference shares, etc.
Details which should be published in newspaper 3 months prior to the transfer of shares?
Rule 6 (3) (a) of the IEPF Rules, require that before the shares are transferred to IEPF, the concerned shareholders shall be informed regarding such transfer and simultaneously the same intimation shall be published in leading newspapers giving details of such shareholders and shares due for transfer.
The details shall mention the name and Client ID /Folio No of such shareholders which shall be available on the website of the company and shall also provide the website address.
Details of Demat Account opened by IEPF Authority with the Depository
According to General Circular No. 12/20173 the IEPF Authority has opened Demat Accounts with NSDL and CDSL through Punjab National Bank and SBICAP Securities Limited as Depository Participants. The details of said accounts are:
|
Particulars |
PNB |
SBICAP |
|
DP ID |
IN300708 |
12047200 |
|
Client ID |
10656671 |
13676780 |
Consequences in case a company defaults in transferring the unpaid/unclaimed dividend amount to the Unpaid Dividend Account
Pursuant to section 124(3) of the Act, 2013, the company shall pay interest at the rate of 12% per annum on the unpaid/unclaimed dividend amount from the date of such default. The interest accruing shall ensure to the benefit of the members in proportion to the amount remaining unpaid to them. Additionally, the company may also be liable for penal provisions as mentioned under section 124 (7).
The author can also be reached at sandhya.malhotra29@gmail.com
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