A company is an artificial and separate legal entity that is established under the law for providing goods and services to people and making a business out of it. These are usually funded by investors who pitch in a certain amount to keep the business up and running.
Companies and Investors have prevailed in our country for a very long time, and the Government of India has kept introducing schemes and funds in order to protect the interest of investors, promote their education, etc, under various sections and sub-sections of the Companies Act. One such initiative was the introduction of the Investor Education and Protection Fund or IEPF.
Section 124(6) of the Companies Act, 2013
This provides that “all shares of which dividend has not been paid or claimed for 7 or more consecutive years, shall be transferred to IEPF”. This means that if any dividend is paid or claimed during any year of the said 7 consecutive years, the transfer of shares to IEPF shall not take place.
What is IEPF?
The IEPF or the Investor Education and Protection Fund is a fund that was set up by the SEBI and the Ministry of Corporate Affairs India, initially under Section 205C of the Companies Act, 1956, and is currently set up under Section 125 of the Companies Act, 2013. It was established with the intent of pooling dividends of matured deposits, share application interests or money, Asset Management Companies, etc, that are unclaimed for seven years, and all these collected funds are then, transferred to the IEPF. It also enables investors to seek a refund for their unclaimed rewards.
Why was it introduced?
The IEPF was introduced with the idea of using the money of investors for their own benefits such as investor education, investor awareness program, etc. The objective was to educate investors on market dynamics, operations, and also make them realize their rights and laws regarding investing. But when the government made it mandatory in 2016, for the transfer of underlying shares on which dividends were not claimed for the last seven consecutive years, there was a lot of confusion and a rise of ambiguities among stakeholders. Hence this was then amended several times by the Ministry of Corporate Affairs, and the process has been simplified ever since.
Procedure for the transfer of shares to IEPF
- The shares are to be credited to the DEMAT Account of IEPF Authority within 30 days of such shares becoming due for IEPF transfer
- The company is to follow the procedure for transmission of shares while transferring the shares to IEPF
- The company secretary or any other person authorized by the Board of Directors is to sign the necessary documents to make the transfer effective
- The company is to inform the shareholder regarding the transfer, three months in advance of the due date of the share transfer, and also post the same on their website
- The company is also to publish a notice informing the names of such shareholders and that information such as client ID, folio number, etc are available on their website, mentioning the website address, in any leading English or regional language newspaper that is widely circulated
- The company is to provide the IEPF authority with contact details of the nodal officer with his or her designation, postal address, telephone and mobile number, etc, within 15 days of publication of these rules and shall also display the officer’s name and email ID on their website
- If the shares are in a depository, the company is to inform and request CDSL and NSDL to transfer the shares to the IEFP authority’s DEMAT account
- If the shares are held in physical form, the company secretary or authorized person by the board is to make an application on behalf of the shareholder, and upon receiving such an application, the shareholder is issued a new share certificate
Changes in IEPF by recent amendments
- A new concept of an e-form IEPF-1 has been brought in to report dividends that have already been transferred, only after notification of IEPF authorities
- Form no. IEPF-4 has been revised to notify the statement of shares transferred to the Investor Education and Protection Fund
- Form no. IEPF-7 has been revised to notify the statement of amounts credited to IEPF on account of shares transferred to the fund
Hence, the Investor Education and Protection Fund (IEPF) was set up to collect all kinds of dividends, matured deposits, share applications, debentures, and interest, unclaimed for seven years, which is beneficial to the investor.
Having seen the procedure for transfer of shares to IEPF, any person whose unclaimed amount has been transferred by the company to IEPF may claim their refunds to the IEPF Authority by filing for form IEPF-5 along with requisite documents.