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Mar 2, 2016

FAQs on Investor Education Protection Fund Authority Rules, 2016

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he long awaited provisions relating to Investor Education and Protection Fund under Companies Act 2013 (“the Act”) have been notified by Ministry of Corporate Affairs vide notification dated September 05, 2016 which shall be effective from September 07, 2016. Among other things, the provisions provide the manner of transferring the unpaid and unclaimed dividend including the shares on which the said amount was due or unclaimed to the Investor Education and Protection Fund.

The provisions related to transfer of shares on which dividend remains unpaid or unclaimed to the aforesaid fund has been introduced for the first time vide Companies Act 2013 and its notification, has opened up plethora of issues.

The provisions of IEPF Rules 2016 with respect to transfer of unpaid or unclaimed divided or shares and issues related thereto are summarized in form of Frequently asked questions (“FAQs”) given below.

Acronyms & Abbreviations used in the Document:

IEPF Investor Education and Protection Fund
Fund Investor Education and Protection Fund constituted under section 125 of the Act
IEPF Rules, 2016 Investor Education and Protection Fund Rules, 2016
Authority Investor Education and Protection Fund Authority constituted under section 125 (5) of the Act

Frequently Asked Questions (FAQs)

  1. What amounts are required to be credited in the Fund under section 125 of the Act?

    As per section 125(2) of the Act, the following amounts are required to be credited to the Fund (IEPF):-

    1. the amount given by the Central Government by way of grants after due appropriation made by Parliament by law in this behalf for being utilised for the purposes of the Fund;
    2. donations given to the Fund by the Central Government, State Governments, companies or any other institution for the purposes of the Fund;
    3. amount transferred to the Unpaid Dividend Account of a company and which remains unpaid or unclaimed for a period of seven years from the date of such transfer;
    4. the amount in the general revenue account of the Central Government which had been transferred to that account under sub-section (5) of section 205A of the Companies Act, 1956, as it stood immediately before the commencement of the Companies (Amendment) Act, 1999, and remaining unpaid or unclaimed on the commencement of this Act;
    5. the amount lying in the Investor Education and Protection Fund under section 205C of the Companies Act, 1956;
    6. the interest or other income received out of investments made from the Fund;
    7.  the amount received under a disgorgement order of court as a punishment for personation of securities under section 38 of the Act;
    8. the application money received by companies for allotment of any securities and due for refund which has remained unclaimed and unpaid for a period of seven years from the date it became due for payment;
    9.  matured deposits with companies other than banking companies which has remained unclaimed and unpaid for a period of seven years from the date it became due for payment;
    10. matured debentures with companies which has remained unclaimed and unpaid for a period of seven years from the date it became due for payment;
    11. interest accrued on the amounts referred to in clauses (viii) to (x);
    12. sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for seven or more years;
    13. redemption amount of preference shares remaining unpaid or unclaimed for seven or more years;  and
    14. such other amount as may be prescribed

    Further, through notification of the IEPF Rules, 2016, the following additional amounts shall be credited in the Fund: –

    1. All shares in respect of which dividend has not been paid or claimed for seven consecutive years or more;
    2. all resultant benefits arising out of shares held by IEPF under section 124(6) like dividend , bonus shares etc.
    3. all grants, fees and charges received by the Authority under these rules;
    4. all sums received by the IEPF Authority from such other sources as may be decided upon by the Central Government;
    5. all income earned by the IEPF Authority in any year;
    6. all amounts payable as mentioned in sub-section (3) of section 108 of the Banking Companies (Acquisition and Transfer of Undertakings) Act. 1970 and section 10B of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980: and
    7. all other sums of money collected by the IEPF Authority as envisaged in the Act.
    8. due, unpaid or unclaimed interest on matured deposits transferred to the Fund;
    9. due, unpaid or unclaimed interest on matured debentures transferred to the Fund;
  2. What amount should be credited by the Companies to the Fund?

    Please take note that the following amount should be credited by a company to the Fund :

    1. the amount in the Unpaid Dividend Account, which remains unpaid or unclaimed for seven years from the date of such transfer;
    2. all shares in respect of which dividend has not been paid or claimed for a consecutive period of 7 years
    3. the application money received by companies for allotment of any securities and due for refund which has remained unclaimed and unpaid for a period of seven years from the date it became due for payment;
    4. matured deposits with companies other than banking companies which has remained unclaimed and unpaid for a period of seven years from the date it became due for payment;
    5. matured debentures with companies which has remained unclaimed and unpaid for a period of seven years from the date it became due for payment;
    6. sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for seven or more years; and
    7. redemption amount of preference shares remaining unpaid or unclaimed for seven or more years; 
  3. What is the time period within which a company has to transfer an amount into Unpaid Dividend Account?
  4. In accordance with section 124 of the Act, if any dividend has not been paid or claimed within thirty days from the date on which divided has been declared by the shareholders or interim dividend been declared by the Board of Directors , the company shall, within seven days from the date of expiry of the said period of thirty days, transfer the total amount of dividend which remains unpaid to a special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account.

  5. Within what time the amount lying in the unpaid dividend account have to be transferred to the Fund?
  6. The amount shall be transferred by the Company to the Fund within a period of thirty days from the date of expiry of seven years from the date of transfer of amount to the unpaid dividend account.

  7. What is the manner of depositing/crediting the funds lying in the unpaid dividend account to the Fund?
  8. The Manner of depositing/crediting an unclaimed amount is set forth below: –

    1. Login on the MCA -21 portal, click on the “miscellaneous fees” link and then select the head IEPF.
    2. Fill the requisite details and select the mode of payment i.e. offline or online
    3. In case of offline payment, generate three copies of challan and submit the same along with necessary amount (either in cash or demand draft) to the specified Bank Branches of Punjab National Bank, which is accredited bank of the Pay and Accounts Office, Ministry of Corporate Affairs.
    4. Bank will return the two copies of duly stamped challan and will forward the third copy to its focal point branch
    5. In case of online payment, the requirement in clause (iii) is not applicable
    6. Thereafter, the Company shall be required to file with the Authority a statements in Form IEPF-1 containing details of such transfer within thirty days of submission of challan*.
      *In case of online payment submission of challan means deposit of the amount to the Fund.
  9. Whether the amount of interim dividend transferred to Unpaid Dividend Account which remains unpaid or unclaimed for seven years is also to be transferred to the Fund?
  10. As per section sec 2 (35) of the Act, the term “dividend” includes interim dividend as well. So all unclaimed dividend amount whether interim or final which remains unpaid or unclaimed for a period of seven years is required to be transferred along with interest accrued, if any to the Fund.

  11. What are the compliance requirements with respect to unpaid/unclaimed dividend?
  12. S. No. Form No. Particulars
    1. Form No. IEPF-6 The company shall furnish a statement to the Authority in Form No. IEPF 6 within thirty days of end of financial year stating therein the amounts due to be transferred to the Fund in next financial year.
    Further, the Company shall also furnish a statement of deviation, if any of the amount in respect of which statement has been last financial year & actual amounts transferred to the Fund.
    2. Form No. IEPF-2 Every company shall within a period of (90) ninety days after the holding of Annual General Meeting and every year thereafter till completion of the (7) seven years period, identify the unclaimed amounts, as on the date of holding of Annual General Meeting, separately furnish and upload on its own website and also on website of IEPFA (Authority) or any other website as may be specified by the Government, a statement or information through Form No. IEPF 2, separately for each year.

  13. What new filing requirements have been introduced under IEPF Rules, 2016?
  14. The following filing requirements have been introduced under IEPF Rules, 2016: –

    Form Purpose Erstwhile Form
    IEPF-1 Statement of amounts to be credited to IEPF Earlier Form 1INV was used
    for the same purpose.
    IEPF-2 Statement of unclaimed and unpaid amounts Earlier Form5 INV was used
    for the same purpose.
    IEPF-3 Statement of shares and unclaimed or unpaid dividend not transferred to the IEPF N.A.
    IEPF-4 Statement of shares to be transferred to the IEPF N.A.
    IEPF-5 Application to the Authority for claiming unpaid amounts and shares from the IEPF N.A.
    IEPF-6 Statement of unclaimed and unpaid amounts to be transferred to the IEPF N.A.

  15. Which shares are required to be transferred to the Fund?
  16. As per sub-section (6) of section 124 of the Act, 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 the Fund irrespective of the fact whether the said dividend has been transferred to the Fund or not. It is important to note that shares required to be transferred has no relation with the amount of dividend transferred or to be transferred to the Fund.

    During the consecutive period of seven years or more, if at any point of the time, a shareholder has requested for renewal of share warrant, then it can’t be said that dividend remain unclaimed.

    Further following shares shall not be transferred

    • in respect of which dividend warrant has been encashed during the last seven years , shall not be required to be transferred even though some of the dividend warrants hasn’t been encashed.
    • in respect of which there is specific order of Court, Tribunal or statutory authority restraining the transfer of such shares

    Shares on which dividend has been unpaid or unclaimed for a period of seven consecutive years or more, is required to transferred regardless of the fact, that whether any dividend has been paid by the Company during the said period or not, or that the dividend has been declared each year; the same has been transferred to unpaid dividend account and the shareholders has still seven years to claim the same from the said account.

    For example,

    1. The company has declared dividend in year 2007 and thereafter no dividend has been declared till date, so in case the dividend declared in 2007 has not been encashed or claimed after 2007, the said shares will be transferred.
    2.  
    3. Dividend transferred to unpaid dividend account  Year in which amount will be transferred to the Fund and time upto which a shareholder can claim the amount from unpaid dividend account Dividend status for a shareholder who hold 100 shares.
      2009 2016 Unclaimed
      2010 2017 Unclaimed
      2011 2018 Unclaimed
      2012 2019 Unclaimed
      2013 2020 Unclaimed
      2014 2021 Unclaimed
      2015 2022 Unclaimed
      2016 2023 Unclaimed

      The 100 shares held by shareholder will be transferred to the fund in year 2016 irrespective of the fact that the said shareholder has still the right to claim the dividend declared during year 2010 or onwards, from the unpaid dividend account

  17. Shareholder ‘A’ has purchased 1000 equity shares in year 2007 and on which dividend has been unpaid or unclaimed for a period of seven consecutive years or more. In Jan 2016, ‘A’ has again purchased 500 equity shares of the same company. After coming into force of IEPF Rules, 2016 , how many shares held by ‘A’ shall be transferred in year 2016 to the Fund?
  18. As per sub-section (6) of section 124 of the Act, 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 the Fund. In extant case, dividend has not been paid or claimed on 1000 shares purchased by ‘A’, therefore only said shares shall be transferred to the Fund but the law is not very clear on this. If only 1000 shares have to be transferred, it will become very difficult for the companies to segregate different holdings of same shareholders arising out of shares purchased at different point of time, in order to find out the number of shares on which dividend has been unpaid or unclaimed. MCA needs to provide necessary clarity on the same.

  19. What procedure is to be followed for effecting the transfer of shares under sec 124 (6) of the of the Act?
  20. The detailed procedure for effecting the transfer of shares is set forth as below: –

    Compliances – for the purpose of effecting the transfer, if shares are held in demat form
    1. The Company Secretary or the person authorised by the Board shall sign on behalf of such shareholders, the delivery instruction slips of the depository participants where the shareholders had their accounts for transfer in favour of IEPF suspense account (name of the company).
    2. On receipt of the delivery instruction slips, the depository shall affect the transfer of shares in favour of the Fund in its records.
    3. While effecting such transfer, the company shall send a statement to the Fund in Form No. IEPF 4 containing details of such transfer.
    4. The depository shall preserve copies of the depository instruction slips for its records
    Compliances – for the purpose of effecting the transfer, if shares are held in physical form
    1. The Company Secretary or the person authorised by the Board shall make an application, on behalf of the concerned shareholders, to the company, for issue of duplicate share certificates.
    2. On receipt of the application, a duplicate certificate for each such shareholder shall be issued and it shall be stated on the face of it and be recorded in the register maintained for the purpose, that the duplicate certificate is “Issued in lieu of share certificate No….. for purpose of transfer to IEPF” and the word “duplicate” shall be stamped or punched in bold letters across the face of the share certificate.
    3. Particulars of every share certificate issued as above shall be entered forthwith in a register of renewed and duplicate share certificates maintained in Form No. SH 2.
    4. After issue of duplicate share certificates, the Company Secretary or the person authorised by the Board, shall sign the necessary Form No. SH 4 i.e., securities transfer Form, for transferring the shares in favour of the Fund.
    5. On receipt of the duly filled transfer forms along with the duplicate share certificates, the Board or its Committee shall approve the transfer and thereafter the transfer of shares shall be effected in favour of the Fund in the records of the company.
    6. While effecting such transfer, the company shall send a statement to the Fund in Form No. IEPF 4 containing details of such transfer.
    7. The Company shall preserve copies of the transfer deeds and duplicate certificates for its records

  21. Whether the shares on which dividend has been unpaid or unclaimed for more than seven years on or before the coming into force of IEPF Rules 2016, are required to be transferred to the Fund?
  22. Yes

  23. What does the proviso to rule 6(3)(a) of IEPF Rules 2016 i.e.  “Provided that in cases, where the seven years as provided under sub-section (5) of section 124 have been completed or are being completed within three months from the date of coming into force of these rules, the company shall initiate the aforesaid procedure immediately and transfer the shares on completion of three months” means?
  24. The proviso to rule 6(3)(a) of IEPF Rules, 2016 provides for transition period to companies with respect to the following cases:

    Case 1: Shares in respect of which, dividend has already been transferred to the Fund

    Case 2: Shares in respect of which dividend has been transferred to unpaid dividend account and period of seven years has elapsed from the date of transfer, on or before September 07, 2016

    Case 3: Shares in respect of which dividend has been transferred to unpaid dividend account and period of seven years will elapse within 3 months of September 07, 2016

    The shares covered under case (1) to (3) shall be transferred to the fund within three months provided no dividend warrant on such shares has been encashed during the last seven years. The IEPF Rules 2016 are silent as to the date from which the aforesaid three months shall be calculated. In our view, three months should start from the date of publication of advertisement in the newspaper, since this is the first step in the process related to transfer of shares to the Fund.

  25. What immediate action is required to be taken by the Companies in respect of shares which are required to be transferred to the Fund?
  26. As per IEPF Rules, 2016, Companies shall on immediate basis required to take the following actions:

    1. Pass a resolution authorizing the Company Secretary or any other person:
      1. To sign the delivery instruction slips for transferring the shares held in demat.
      2. To submit application to the Company on behalf of shareholders, for issue of duplicate share certificate.
      3. To sign form SH-2 for transferring the shares held in physical form to the Fund
    2. Identify the list of shareholders, whose shares are eligible for transferring to the Fund.
    3. Inform the shareholders whose shares are becoming due for transfer to the Fund. Since the mode of intimation has not mentioned in the Rules, the intimation shall be given in accordance with the provisions of section 20. Simultaneously, publish a notice in the leading newspaper in the English and regional language having wide circulation. However, no format for giving the advertisement has mentioned in the Rules and time frame to give the newspaper advertisement is also not provided in the Rules.
    4. Post the details of such shareholders & the shares due for transfer on the website of the Company.
    5. Pass necessary Board/committee resolution to approve the transfer of physical shares to the Fund.
    6. File IEPF -4 in respect of those shares which have been transferred to Fund.
  27. What action should companies take from next year on regular basis for transferring the shares to the fund?
  28. As per Rule 6 of the IEPF Rules, 2016, the Companies shall be required to notify the shareholders atleast 3 months before the due date of transfer of shares i.e. 6 years and 9 months before the date of transfer of shares. The procedure for notifying the shareholders is covered in question 10.

  29. Whether a shareholder whose shares have been transferred to fund, can claim the dividend for such shares which is still lying in the unpaid dividend account of a company?
  30. Yes, since he was holding such shares at the time when the dividend was declared by a company. 

  31. What is the due date to transfer the shares under 124(6) to the Fund?
  32. The Shares shall be transferred to an IEPF suspense account within a period of 30 days of such shares becoming due to be transferred to the Fund i.e. 30 days after an expiry of 7 years from the date of dividend to unpaid dividend account.

  33. Whether on transfer of shares, the voting rights on such shares shall also stand transferred to the Fund?
  34. As per Rule 6 (4) of the IEPF Rules, 2016, the voting rights on shares transferred to the Fund shall remain frozen until the rightful owner claims the shares. However, as per SEBI Takeovers Regulations, 2011, the shares which have been transferred to the Authority shall not be excluded while calculating the total voting rights.

  35. Is the Company required to pay stamp duty on transfer of shares to the Fund?
  36. Since it’s a transfer of shares by operation of law,  therefore no stamp duty is required to be paid.

  37. What happens to the shares or securities transferred to the IEPF suspense account, in case of delisting or wounding-up?
  38. As per Rule 6 (11) of the IEPF Rules, 2016, in case if the Company is getting delisted, the Authority shall surrender such shares on behalf of the shareholders in accordance with SEBI (Delisting of Equity Shares) Regulations, 2009 and proceeds realized shall be credited to the Fund.

    As per Rule 6(12) of the IEPF Rules, 2016, in case of the Company whose shares or securities are held by the Authority is being wound up, the Authority may surrender such securities to receive the amount entitled on behalf of the security holder & credit the amount to the Fund.

    Therefore, from abovementioned provisions, it is clear that in case of delisting, the authority is under an obligation to surrender the shares but in case of winding up, the Authority is not under an obligation to surrender the securities.

  39. What disclosures are requirement to be published on the website of the company or any other website, as per the IEPF Rules 2016?
  40. The various website disclosure requirements as enumerated in IEPF Rules, 2016 is set forth below:

    S. No. Disclosures To be placed on
    1 The Statement of unclaimed and unpaid amounts for each year which shall contain the following information shall be placed on the website within a period of 90 days after the holding of Annual General Meeting: –

    • the name and last known addresses of the person entitled to receive the sum
    • the nature of amount;
    • the amount to which each person is entitled;
    • the due date for transfer into the Investor Education and Protection Fund; and
    • such other information as may be considered relevant for the purposes.

    [Rule 5 (8) of the IEPF Rules, 2016]

    • Company’s Website
    • Authority Website
    2 Details of the shareholders and shares which are due for transfer shall be published atleast 3 months before the due date of their transfer to the IEPF suspense account (on the name of the Company)

    [Rule 6 (3) of the IEPF Rules, 2016]

    Company’s Website

  41. What will be the course of action where a Company declares dividend on the shares which have already been transferred to the Fund?
  42. If Company declares any further dividend on the shares which have already been transferred to the Fund, the amount received on such shares shall also be transferred to the Fund.

  43. How can a person entitled to the amount/shares credited to the Fund, claim the same from the Fund?
  44. Any person whose shares, unclaimed dividend, matured deposits, matured debentures, application money due for refund or interest thereon, sale proceed of fractional shares, redemption proceeds of preference shares etc., has been transferred to the Fund, may claim the shares under section 124(6) of the Act or apply for refund under section 125(3) of the Act or under its proviso to the Authority.

    The detailed procedure for claiming a refund from the Authority is enumerated as under:-

    Steps Requirements Time lines
    1 The Claimant shall required to make an application in form IEPF 5 which is available on website www.iepf.gov.in along with fees as decided by the Authority  
    2 After step one file form IEPF 5 which shall be duly signed by the claimant along with the following documents to the Company at its registered office :

    1. Print out of duly filled claim form with claimant signature
    2. Copy of acknowledgement
    3. Indemnity Bond (original) with claimant signature
    4. Advance Stamped receipt (original)
    5. In case of refund of matured deposit or debenture, original certificate thereto
    6. Copy of Aadhaar Card
    7. Proof of entitlement (certificate of share/Interest warrant Application No. etc.)
    8. Cancelled Cheque leaf
    9. Copy of Passport, OCI and PIO card in case of foreigners and NRI
    10. Other optional document,(if any)
    After filing form IEPF 5 with the IEPF Authority
    3 The Company shall on receipt of claim form, send a verification report to the Authority in the format specified by the Authority along with the aforesaid documents as submitted by the claimant.
    Please take note that as of now, no format has been prescribed by the authority.
    Within 15 days on receipt of claim form i.e. Form IEPF 5
    4 On receipt of verification report or after verification the Authority shall take the following actions:

    1. In case if amount is claimed: the Authority & the Drawing and Disbursement officer of the Authority shall present a bill to t he pay and accounts office for e-payment as per the guidelines.
    2. In case if shares are claimed: The Authority shall issue a refund sanction order with the approval of the competent Authority &
      • shall credit the shares which are lying with the depository participant in IEPF suspense account (name of the Company) to the demat account of the claimant or
      • In case of the physical certificates, if any, cancel the duplicate certificate & transfer the shares to the claimant.
    The application shall be disposed of by the Authority within 60 days from the date of receipt of the verification report from the Company.

    Note:

    • In case where the application is incomplete, such deficiencies shall be communicated by the Authority to the claimant.
    • In case where the applicant is a legal heir or successor or administrator or nominee of the registered security holder, he has to ensure that the transmission request shall be completed by the Company before making any claim application with the Authority.
    • The Claimant shall file only one consolidated claim in respect of a Company in a Financial Year.
  45. Who shall be held liable & what penalty shall be imposed for not transferring the amount lying in the unpaid/unclaimed dividend amount and shares covered u/s 124(6) of the Act to the Fund?
  46. As per section 124(7) of the Act, the following person shall be held liable for non-compliance: –

    1. The Company shall be punishable with fine which shall not be less than 5 lakh rupees but which may extend to 25 lakh rupees and
    2. Every officer of the Company who is in default shall be punishable with fine which shall not be less than 1 lakh rupees but may extend to 5 lakh

    Date: September 21, 2016

    Disclaimer:

    The entire contents of this document have been developed on the basis of relevant statutory provisions and as per the information existing at the time of the preparation. Though the author has made utmost efforts to provide authentic information however, the material contained in this document does not constitute/substitute professional advice that may be required before acting on any matter. The author and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.