FAQs on transfer of unpaid dividend and underlying shares to IEPF

Introduction

 

MCA vide notification no S.O. 2866(E) dated 5th September, 2016[1] 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). Further, MCA has also come up with another notification dated 5th September, 2016 whereby it has brought the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016[2] (‘Principal Rules’).

 

A lot of compliances have arisen with the enforcement of sections 124 and 125 of the Companies Act, 2013 (Act, 2013). Lots of questions and confusions have come up for transfer of shares where dividends are long outstanding. There is a compliance to be done by almost every dividend-paying company and the compliance needs to be done almost immediately. However, the provisions provided in the Principal Rules had technical as well as practical difficulties while implementing. Based on the representations made by the stakeholders, MCA vide its circular dated 8th December, 2016 expressed its intention to revise the aforesaid Rules with respect to transfer of shares. Accordingly, the Ministry on 28th February, 2017 has amended certain portion of the Principal Rules by virtue of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Amendment Rules, 2016 (‘Amended Rules’).

 

Now, it seems that the prolonged postponement for transferring shares to IEPF is over. MCA vide its Notification dated [1]13th October, 2017 has added yet another notification on IEPF, to its list. The Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Second Amendment Rules, 2017 (“Second Amendment Rules”) has been made effective from 13th October, 2017. Even though the Second Amendment Rules have yet again come out with an extended time line for effecting transfer of shares, some of the operational issues are not yet clarified for effecting such transfer to IEPF.

 

Further, MCA has also issued a Circular dated [2]16th October, 2017 which provides for certain details on the Second Amendment Rules.

These FAQs are an attempt to cater to the curiosity of the companies who have to comply with the requirements arising out of the enforcement and the revision in the Principal Rules. We have assimilated some questions and put their answers here.

 

FAQ Corner

 

  1. Whether the underlying shares of unpaid or unclaimed dividends are required to be transferred to IEPF when the amount of unpaid or unclaimed dividend is being transferred?

 

Ans. 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.

 

Here it is pertinent to note that the foremost condition for transfer of shares is that the dividend on such shares shall be unpaid or unclaimed for a seven consecutive years.

 

Accordingly, as per section 124 (6) of the Act, 2013 the underlying shares of unpaid or unclaimed dividend are also required to be transferred to IEPF apart from the amount of unpaid or unclaimed dividend.

 

  1. What amounts are required to be credited to the Fund? Are these same as were required under Companies Act, 1956?

 

Ans. 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. These additional amounts have been written in bold below:

 

  1. the amount in the Unpaid Dividend Account of companies transferred to the Fund under sub-section (5) of section 124;
  2. the application money received by companies for allotment of any securities and due for refund;
  3. matured deposits with companies other than banking companies;
  4. matured debentures with companies;
  5. interest accrued on the amounts referred to in clauses (2) to (4);
  6. 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;
  7. Donations given to the Fund by the Central Government, State Governments, companies or any other institution for the purposes of the Fund;
  8. the interest or other income received out of investments made from the Fund;
  9. the amount received under sub-section (4) of section 38 ( disgorgement of securities);
  10. sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for seven or more years;
  11. redemption amount of preference shares remaining unpaid or unclaimed for seven or more years;

 

Further, by way of the IEPF Rules, the following are to be credited:

  1. all the shares in accordance with section 124 (6) of the Act, 2013;
  2. resultant benefit arising out of shares held by IEPF Authority
  3. all grants, fees and charges received by the IEPF 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. amount 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 section 40A of the State Bank of India (Subsidiary Bank) Act, 1959; and: and all other sums of money collected by the IEPF Authority as envisaged in the Act, 2013.

 

Please note that from the above items, only item no. 1 (i.e. all the shares in accordance with section 124 (6) of the Act, 2013) is to be transferred by the company and rest items are pertaining to the IEPF Authority.

 

  1. Within what time should the shares be transferred to the IEPF?

 

Ans. As per rule 6 of the IEPF Rules, the shares shall be credited to DEMAT Account opened by the IEPF Authority within thirty days of such shares becoming due to be transferred to the IEPF.

 

Considering that the due date for transferring shares on which dividend has remained unpaid and unclaimed from the financial year 2009-10 and onwards is 31st October, 2017, therefore, all the transfer formalities should be completed within 30th November, 2017.

 

  1. Whether it is mandatory to transfer the unclaimed or unpaid dividend amount and the underlying shares for the same on the same day to the IEPF?

 

Ans. Rule 5 (1) of the IEPF Rules provides for a time period of 30 days for transferring the unpaid or unclaimed amount to the IEPF Fund from the date of its becoming due to be credited. Similarly, rule 6 (1) of the IEPF Rules provides that the shares shall be credited to the IEPF Authority within 30 days of the shares becoming due to be transferred to the IEPF.

 

Accordingly, pursuant to the aforesaid provisions, it can be construed that transferring of both the unpaid or unclaimed amount and the shares on the same day is not required. However, the company shall bear in mind the time limit of 30 days for both the purposes.

 

  1. When the unclaimed/ unpaid amount shall be transferred to the IEPF Fund?

 

Ans. Pursuant to section 124(5) of Act, 2013, a company shall transfer any amount lying in the Unpaid Dividend Account for 7 years along with interest accrued, if any, thereon to the Fund.

 

  1. Whether the word ‘consecutive’ mentioned under section 124 (6) is relevant for both unpaid or unclaimed dividend and shares?

 

Ans. We would like to draw your attention to the provisions of section 124 (5) of the Act, 2013 which states that “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 xxx”.

 

Further, the provisions of section 124 (6) of the Act, 2013 states, “All shares in respect of which dividend has not been paid or claimed for seven consecutive years or more under sub-section (5) shall also 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”.

 

Looking at the language of the aforesaid provisions, we can clearly understand the following:

 

  • The requirement for transferring unpaid or unclaimed dividend arises when the same is unpaid or unclaimed for seven years. Here the period of seven years may or may not be consecutive.

 

  • However, when we calculate the period of seven years for the purpose of transferring the shares underlying such unpaid or unclaimed dividend, it is mandatory that such unpaid or unclaimed amount of dividend is lying with the company for seven consecutive years or more.

 

We would like to explain the above discussion with the help of an example:

 

Mr. A has not claimed dividend for FY 2008-2009, however he claimed dividend for FY 2009-2010. In the instant case the dividend that remains unpaid for FY 2008-2009 shall be transferred to IEPF on expiry of seven years, i.e. FY 2015-16. However, the underlying shares cannot be transferred in FY 15-16 since Mr. A has claimed dividend on such shares for the FY 2009-10. The shares will only be transferred in case there is a failure of consecutive seven years in payment of dividend.

 

In the present case, the underlying shares will only get transferred to IEPF in the FY 2017-18 provided Mr. A has not encashed any dividend on such shares from FY 2010-11 and onwards.

 

Therefore, the word ‘consecutive’ mentioned under section 124 (6) is only relevant for the transfer of underlying shares.

 

 

  1. What are the compliances required with respect to unpaid/unclaimed dividend?

 

Ans. Section 124(1) of the Act provides that where any dividend has not been paid or claimed within 30 days from the date of the declaration of such dividend, the company shall, within 7 days from the date of expiry of the said 30 days, transfer the total amount of unpaid/ unclaimed dividend to a special account known as Unpaid Dividend Account to be opened by the company in that behalf in any scheduled bank.

 

Further, every company shall, within a period of ninety days, after the holding of Annual General Meeting or the date on which it should have been held as per the provisions of section 96 of the Act, 2013 and every year thereafter till completion of the seven years period, identify the unclaimed amounts (which shall include unclaimed and unpaid dividend), as referred in section 125 (2) of the Act, 2013, as on the date of holding of Annual General Meeting or the date on which it should have been held as per the provisions of section 96 of the Act, 2013, separately furnish and upload on its own website and also on website of 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 containing following information, namely:-

 

  • the names and last known addresses of the persons 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.

 

Further, please note that under the erstwhile Act, Form 5INV comprised of similar compliances.

 

  1. In Rule 5 (8) it is stated that the form IEPF – 2 is to be filled “separately for each year”. Companies were following the practice of compiling the data as on the AGM Date for all say 15 unpaid dividend accounts and filing a single INV-5 within 90 days of the AGM. Now whether the company has to file 15 IEPF-2 forms as per the new rule for each of the dividend paid?

 

Ans. While the language of Rule 5(8) is bit unclear, we are of view that, the Rules prescribes that within 90 days of AGM the details of unclaimed amount as on the date of AGM should be disclosed as follows:

 

  1. IEPF-2 shall be filed and
  2. a statement containing the prescribed details, separately for each years, shall be hosted on the website of the Company.

 

Accordingly, in our view the term ‘separately for each year’ relates to the statement and not to e-form IEPF-2.

 

Also note that, the e-form IEPF-2 is corresponding to earlier e-form 5INV and there is not much difference in the contents of the forms. The details required under e-form IEPF-2 are all the most similar to the details required under earlier form 5INV (except for the fact that under point 7 there are some addition and deletion for details of unpaid and unclaimed amounts).

 

Another point supporting our view is that the details required to be hosted on the website of the Company requires the due date for transfer of such shares to be mentioned in the statement, whereas such information is not required in e-form IEPF-2. IEPF-2 only requires the aggregate of unclaimed and unpaid amounts as on the date of AGM.

 

Therefore, given the pretext above, in our view, the statement is required to be prepared separately for each year.

 

  1. What are the consequences in case a company defaults in transferring the unpaid/unclaimed dividend amount to the Unpaid Dividend Account?

 

Ans. Pursuant to section 124(3) of the Act earlier section 205A (4) of CA, 1956, company shall pay an 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).

 

  1. What are the consequences in case a company defaults in transferring the shares to the IEPF Fund?

 

Ans. As per section 124 (7) of the Act, 2013, in case a company makes a default in transferring shares to the IEPF Fund, such company shall be punishable with fine which shall not be less than five lakh rupees but may extend to twenty-five lakhs rupees. In addition to the same every officer in default shall be punishable with a fine which shall not be less than one lakh but may extend to five lakh rupees.

 

  1. Within what time should the shares remaining unclaimed for period of more than say 10 years be transferred to the IEPF?

 

Ans. Second Proviso to rule 6 (1) of the Amended Rules specifically deals with shares remaining unclaimed for a period of more than seven years. Unlike the Principal Rules, the Amended Rules however, have not provided for the mandatory requirement to follow the procedural requirements by the companies such as sending of individual notices to the shareholders, publication of notice in newspapers etc. as mentioned in rule 6 (3) (a) of the Amended Rules. However, it cannot be said that the shares in respect of which dividends have been remained unclaimed for more than seven consecutive years will not require any notice/ information. Therefore, the compliance pertaining to individual notice, newspaper publication etc. will still be required though the same will not fulfill the condition of prior 3 months’ notice as the deemed due date of transfer would mandatorily be 31st October, 2017.

 

  1. As per section 124(6) of Act, 2013 all shares in respect of which dividend remains unpaid or unclaimed for 7 consecutive years has to be transferred to Investor Education and Protection Fund (IEPF). Can a shareholder claim back the shares from IEPF? Also can he attend general meeting and vote thereat?

 

Ans. Section 124(6) states that all the shares, in respect of which dividend has not been paid or claimed for 7 consecutive years has to be transferred to the IEPF.  However proviso to the section provides that any claimant of such shares shall be “eligible 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”.  Therefore, pursuant to section 125 (3) read with Rule 7 (1) of IEPF Rules, any rightful claimant can claim the transfer of shares from IEPF Authority by making an application to the IEPF Authority in e-form IEPF 5 along with fee, as decided  by  the  Authority  from  time  to  time  in  consultation  with  the  Central Government, under his own signature.

 

In case the shares are transferred to the IEPF, the shareholder loses the right to attend and vote at the general meeting since along with the shares his voting rights also stands transferred. However, in case he claims back such shares from IEPF Authority, the voting rights will become active once again.

 

  1. Does the shareholder ceases to be owner once the shares are transferred to the IEPF?

 

Ans. The transfer of shares to IEPF is a temporary suspension of property rights. Looking at the IEPF it seems it is the custodian of the shares because there is a provision for the shareholders to claim it back. Therefore, it cannot be said that the shareholder ceases to be the owner.

 

  1. Can IEPF re-transfer the shares?

 

Ans. No, IEPF cannot re-transfer the shares which have been credited in its Fund, unless any rightful owner makes an application in the prescribed form to get it re-transferred.

 

  1. What is new with respect to the forms?

 

Ans. Under the Act, 1956 there were two forms, Form 1INV for filing the statement of amount credited to IEPF and Form 5INV which was the statement showing the unpaid and unclaimed dividend with the company, however under the Act,  2013 IEPF-1 and IEPF-2 has been prescribed in place of 1INV and 5INV respectively. Apart from above, there are additional forms like IEPF-3, IEPF-4, IEPF-5 and IEPF-6 for serving various other purposes as follows:

 

Sr. No. Name of the form Purpose of the form Remarks
1. Form No IEPF -1 Statement of amounts credited to IEPF Earlier Form 1INV was used for the same purpose.
2. Form No IEPF -2 Statement of unclaimed and unpaid amounts Earlier Form5INV was used for the same purpose.
3. Form No IEPF -3 Statement of shares and unclaimed or unpaid dividend not transferred to the IEPF New form.
4. Form No IEPF -4 Statement of shares to be transferred to the IEPF New form.
5. Form No IEPF -5 Application to the Authority for claiming unpaid amounts and shares from the IEPF New form.
6. Form No IEPF -6 Statement of unclaimed and unpaid amounts to be transferred to the IEPF. New form.

 

  1. Whether the provisions of section 124 of the Act, 2013 are also applicable in case of interim dividend being unpaid or unclaimed?

 

Ans. Section 124 of the Act, 2013 provides for the compliances relating to unpaid dividend account. The opening lines of the section read as Where a dividend has been declared by a company xx where the term dividend as per section 2 (35) of the Act, 2013 includes interim dividend as well, in addition to final dividend. Therefore, the provisions of section 124 are also applicable in case of interim dividend.

 

  1. The practice adopted by companies and banks was to change the nomenclature of the account opened for disbursement of the amount of the dividend declared. In view of above change, whether the said practice needs to be changed and an altogether new account is required to be opened for transferring the unpaid dividend amount?

 

Ans. We understand that pursuant to the requirement of section 123 of the Act, 2013, the Company opens a separate bank account for the purpose of declaration of dividend. The intent of the provisions for opening a separate account is to keep the amount of dividend separate from the funds of the Company so that the amount of dividend cannot be used by the Company for any other purpose.

 

Generally many companies follows a practice to change the nomenclature of such separate bank account opened for disbursement of the amount of the dividend declared and after the prescribed period such account renamed as ‘unpaid dividend account’.

 

It is apropos to mention here that similar provision was also there under the Act, 1956. Hence, keeping in mind the provisions of Act, 2013 and Act, 1956 we are of view that there is no harm in continuing with the same practice.

 

  1. As per regulation 39(4) of the SEBI LODR Regulations, 2015, shares in respect of which certificate are lying undelivered with the Companies or RTA needs to transferred to a suspense account with all benefits being kept in abeyance in respect thereof. After IEPF Rules coming into force, whether the said shares are also be transferred to the authority provided they meet the 7 consecutive years dividend criteria.

 

Ans. Yes, from the enforcement of the IEPF Rules the shares lying in the unpaid dividend account shall also be transferred to the authority provided they meet the 7 consecutive years dividend criteria.

 

Please note that similar provisions are also provided under point C (iv) of Schedule VI of SEBI LODR Regulations, 2015.

 

  1. Up to what time the records mentioned under rule 5 (6) (c) of the IEPF Rules, 2016 are to be maintained and kept by the Companies?

 

Ans. Although rule 5(6)(C) of the IEPF Rules specifies that the Companies are required to keep and maintain the records consisting of names, address, amount, etc. in respect of whom the unpaid dividend has been transferred to IEPF, however it is not provided as up to what time these records are to be maintained and kept by the Companies.

 

Therefore, in our view the same should be permanently maintained by the Company since pursuant to the proviso to section 124 (6) of the Act, 2013, the claimant of shares transferred to IEPF are entitled to claim the transfer of shares from IEPF fund at any point of time (even after the term of seven years) and the IEPF Authority shall have the power to inspect such records maintained by the Company.

 

  1. Mention the circumstances when the shares cannot be transferred to the IEPF even after the period of seven years have elapsed?

 

Ans. There are certain occasions when the shares even after the being left with the company for more than seven years may be transferred to the IEPF Authority:

 

  • In case the beneficial owner has encashed any dividend warrantduring 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.

 

  1. Whether the shares will be transferred in case the pledge is revoked?

 

Ans. In case the pledge is revoked, the underlying shares are required to be immediately transfer to the IEPF demat account since the pledgee’s will no longer have any security interest in the said shares and the same will solely belong to the shareholder who has not claimed dividends for the last seven consecutive years.

 

  1. Whether pledge on physical shares will also be counted for the purpose of rule (6) (3) (b) of the Amended Rules?

 

Ans. The language of the aforesaid rules states that ‘such shares are pledged or hypothecated under the provisions of the Depositories Act, 1996’ which implies that only demat shares are covered as whenever demat shares are pledged or hypothecated the company comes to know about it through its depository.

 

Further, pledge on physical shares should not be taken into consideration for the purpose of rule (6) (3) (b) of the Amended Rules since in case of physical shares, company is not expected to have notice of any pledge or hypothecation created on the shares by any shareholder.

 

  1. What will be the situation in case pledge of shares is invoked by the pledgee?

 

Ans. Once any pledge is invoked, the pledgee becomes the owner of the shares as per the terms of the pledge. Therefore, in our view since the dividends on the shares of a shareholder is not unclaimed or unpaid therefore, in our view such shares are not liable to be transferred to the IEPF demat account.

 

  1. Under what circumstances the IEPF Authority is required to surrender the shares?

 

Ans. 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 a separate ledger account shall be maintained for such proceeds.

 

  1. Second proviso to rule 6(1) of the IEPF Rules states that in cases where the period of 7 years has expired or is expiring within the period from 7thSeptember, 2016 to 31st October, 2017. What will be the exact timeline for effecting the actual transfer in such a case?

 

Ans. In terms of the said proviso, the deemed due date of transfer will be 31st October, 2017 where 7 consecutive years has already expired or to get expired during the period from 7th September, 2016 to 31st October, 2017. In normal case, the actual transfer should be effected within 30 days of the shares becoming due i.e. the date of completion of seven consecutive years, to be transferred to the Fund. The period of 30 days will also be available for transfer of the shares for the aforesaid period.

 

 

  1. In cases for which proceedings are going on in respect of grant of succession certificate but there may be or may not be any express direction of the concerned court with respect to restraining transfer of such shares. Whether such cases are also required to be transferred to IEPF?

 

Ans. Rule 6(3) (b) of the IEPF Rules expressly states that in respect of which there is any specific order issued by court, tribunal, statutory authority restraining transfer of shares and payment of dividend need not be transferred to IEPF, therefore, in cases for which proceedings are going on in respect of grant of succession certificate, or any other related issue, there cannot be said to have a specific restraint order for the same. Hence, the transfer of shares connected with such ongoing proceedings cannot be restrained to get transferred to IEPF on its becoming due for such transfer.

 

  1. Rule 6 (3) (b) of the IEPF Rules also states that the order should be restraining both transfer of shares and payment of dividend. Although it is presumed that if the order is for restraining transfer of shares, then even dividend on such shares shall also be kept in abeyance. But since the rule specifically demands restraining order on both grounds, what would be treatment if such order is only on one aspect?

 

Ans. Where the restraint order is either on the transfer of shares or on the payment of dividend or on both, in either of the situations, such shares will not be transferred to the IEPF Authority.

 

  1. It is not clear in case the share certificates are lying with the Company undelivered, whether also for such shares, new share certificates are required to be issued in compliance with rule in compliance with rule 6 (3) (d) of the IEPF Rules?

 

Ans. Rule 6 (3) (d) (ii) of the IEPF Rules expressly mention that on receipt of the application under clause (a), a new 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 new certificate is “Issued in lieu of share certificate No. … for purpose of transfer to IEPF”.

 

Since the original share certificate will not have the aforesaid words written on it, therefore, it will be mandatory to issue a new share certificate in compliance with the language of the law. 

 

  1. Is the transfer under the said rules will stand out to be conveyance?

 

Ans. The above transfer is inter-vivos, therefore it is not a case of conveyance. Further, the amended rules on IEPF have clarifies that the transfer of shares to IEPF is in the nature of  transmission.

 

  1. Rule 8(2) of the IEPF Rules states that the company shall furnish a statement to the authority within 30 days of the closure of its accounts for the financial year stating therein reasons of deviations of amount of unpaid dividend proposed to be transferred and actual amount transferred. Here the cut-off date i.e. closure of its accounts for the financial year is not clear. Whether it is 31st March of the year or the date of Board meeting in which financial statements are approved?

 

Ans. Generally the accounts of a Company get finalized after 31st March every year. Therefore, the date of closure of accounts for the financial year shall be when the financial statements are approved in the board meeting.

 

  1. Till what time the Company preserve the copies of new certificates in its records as mentioned under rule 6 (4) of the IEPF Rules?

 

Ans. Keeping the logic and reason as given in question no. 19 above. The same should be preserved permanently.

 

  1. In situations where – (a) Company has sent the cheque/ demand draft towards unpaid dividend but the same has not been encashed by the shareholder and (b) the investor has lodged his request for unpaid dividend but the Company has not accede to his request for reasons like mismatch of signatures, shares under dispute, etc.

 

What will be the treatment in the above two situations keeping in mind the language inconsistency between the Act and the rules?

 

Ans. Firstly, let us take a look at the inconsistency of the language between the Act, 2013 and the IEPF Rules.

 

Explanation to Section 124(6) states as under-

 

“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.’’

 

Further rule 6 (1) of the IEPF Rules states as under –

 

“Provided that, in case the beneficial owner has encashed any dividend warrant during the last seven years, such shares shall not be required to be transferred to the Fund even though some dividend warrants may not have been encashed.”

 

Until a declared dividend is not encashed by the shareholder, it is not taken to be paid. Therefore, going by the above provisions, in our view the following treatment may be done in the situations given above:

 

(a) Company has sent the cheque/ demand draft towards unpaid dividend but the same has not been encashed by the shareholder

 

In the above case the dividend will be taken as not paid or claimed and if the situation persists for the next 30 days from the date of declaration, it will be transferred to the unpaid dividend account on the 37th day from the date of declaration and thereafter to the IEPF on the expiry of seven years.

 

(b) the investor has lodged his request for unpaid dividend but the Company has not acceded to his request for reasons like mismatch of signatures, shares under dispute, etc.

 

In the above situation, it can be construed that the shareholder has showed interest and claim on the dividend, therefore it may not be prudent to transfer such shares to the IEPF. Company should ask for further clarification to accede the shareholder’s request. However, specific time should be given to such investor to provide all the required documents failing which his shares will be liable to be transferred to the demat account.

 

  1. Will the voting rights on the shares transferred to the IEPF be active?

 

Ans. Referring to rule 6 (6) of the IEPF Rules, the voting rights on the shares transferred to the IEPF Authority shall remain frozen until the real or rightful owner of such shares come forward to claim them.

 

However, the proviso to this rule is very interesting to state that for the purpose of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the shares which have been transferred to the IEPF Authority shall not be excluded while calculating the total voting rights.

 

  1. What is the purpose of e-Form IEPF-5?

 

Ans. Any person whose shares, unclaimed dividend, matured deposits, matured debentures, application money due for refund or interest thereon, sale proceeds of fractional shares, redemption proceeds of preference shares etc. has been transferred to the IEPF Fund, may claim the shares under provision to sub-section (6) of section 124 or apply for refund, under clause (a) of sub-section (3) of section 125 or under proviso to sub-section (3) of section 125, as the case may be, to the Authority by making an application in Form IEPF 5 online available on website along with fee, as decided  by  the  Authority  from  time  to  time  in  consultation  with  the  Central Government, under his own signature.

 

  1. Will the shareholder get back the voting rights as soon as he makes the application to IEPF Authority in form IEPF-5?

 

Ans. Once a shareholder makes an application to the IEPF Authority he will have to wait till the shares claimed for in the application is approved by the IEPF Authority. Till such application is approved no shareholder can exercise his voting rights in respect of the shares claimed for in the application.

 

  1. Timeline to follow for unpaid or unclaimed dividend and underlying shares.

 

Ans. Following is the timeline to follow in respect of unpaid or unclaimed dividend and underlying shares:

 

Activity Timeline
Declaration of dividend in the general meeting  by shareholders X day
Transfer of amount declared to separate bank account Within X+5 days
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
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 90 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
Transfer shares whose dividend is unclaimed/unpaid in terms of Rule 6 (3) of IEPF Rules.

 

e-Form IEPF-4 to be filed while effecting transfer of shares to the Fund containing details of such transfer

 

Within 30 days of (X+30+7) days + 7 years
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.
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.

 

  1. Who is a Nodal officer (IEPF)?

 

Ans. While the IEPF Rules are silent on Nodal officer, MCA vide its Circular dated 27.10.2016 and subsequently vide its IEPF Second Amendment Rules, 2016 has informed all the companies for nominating Nodal officer. It states that every company shall nominate a Nodal officer for the coordination purpose with IEPF Authority so as to ensure processing and verification of claims in time bound manner.

 

Further the companies are requested to inform the details of the Nodal officer with his/her contact details and email ID within 15 days from the publication of the IEPF Second Amendment Rules, 2017 week at email id ceo_iepfa@mca.gov.in. The Company is then also required to update the details of such nodal Officer at its website.

 

In this regard, we would also like to draw your attention to e-Form IEPF -5. In the e-Form a declaration is required to be given by the claimant that after filing the refund claim the form online, the claimant shall send the attachments prescribed in said form to the Nodal Officer (IEPF) of the company at its registered office in an envelope marked “claim for refund form IEPF Authority” for initiating the verification for claim.

 

Accordingly, a Nodal officer is authorized to receive the attachments to the claim from a claimant while an application for refund is being made.

 

Eg: In case, the Company has not nominated a Nodal Officer earlier vide the MCA Circular dated 27.10.2016, then the maximum time for appointing or nominating a Nodal Officer as per IEPF Second Amendment Rules is 13th October, 2017 + 15 days= 27th October, 2017.

 

  1. Can the shareholders be intimated only once in each year about their shares which are due to be transferred to IEPF, irrespective of number of dividends declared during the year?

 

Ans. The Company is required to intimate and inform the respective shareholders about the fact of transferring their unclaimed shares in compliance with rule 6 (3) (a) of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (‘IEPF Rules, 2016’).

 

Rule 6 (3) (a) states, “ the company shall inform at the latest available address, the shareholder concerned regarding the transfer of shares three months before the due date of transfer of shares xxx’.

 

Looking at the language of the aforesaid provisions, it is clear that on the expiry 6 years and 9 months from the date of transfer of such dividend to unpaid dividend account, a company shall inform their shareholders regarding proposed transfer to IEPF. Thereafter, on completion of 3 months from such intimation, the Company shall transfer such shares to IEPF.

 

Considering a situation where a company has declared both interim dividend and final dividend, then in such cases the due dates for transfer of unpaid and unclaimed dividend and the underlying shares to IEPF will be different and will be based on the date of declaration of such dividends.

 

The period of 6 years and 9 months for the purpose of informing shareholders will be different. Therefore, in such case intimating the shareholder once in a year will not suffice the purpose of rule 6 (3).

 

Accordingly, the Company has to intimate the shareholders based on the due dates of transfer to IEPF.

 

  1. How will the Company manage to issue several new shares certificates?

 

Ans. As per rule 6 (3) (d) of the IEPF Second Amendment Rules, 2017, the CS or any person authorised by the Board shall be required to apply to the Company to issue new share certificates on behalf of the shareholders. Accordingly, in view of the provisions we would suggest that the Board of the Company for the sake of convenience must authorize several persons in this behalf besides the CS.

 

  1. If voting right is frozen, then how e-voting result will be calculated? (excluding the frozen shares or including it in total voting rights ?

 

Ans. As per rule 6 (6) of the IEPF Rules, 2016 the voting rights on shares transferred to the Authority shall remain frozen until the rightful owner claims the shares. This provision has the only exception with respect to calculation of total voting rights under SEBI (SAST) Regulations, 2011.

 

Therefore, for the purpose of e-voting, shares which have been transferred to the IEPF shall not be included while calculating total voting rights.

 

  1. What details should be published in newspaper to be published 3 months prior to transfer of shares?

 

Ans. Rule 6 (3) (a) of the Principal Rules, 2016 required 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.

 

However, the content of such publication was not mentioned in the Principal Rules. Subsequently, the Amended Rules states that the newspaper advertisement shall inform the concerned shareholders that the name and Client ID /Folio No of such shareholders will be available on the website of the company and shall also provide the website address.

 

  1. Whether Company has to open the Demat A/c of the IEPF Authority or the Authority would open it?

 

Ans. No, the Authority itself is required to open a Demat A/c as mentioned under rule 6 (1) of the Amended Rules.

 

  1. Whether the IEPF Authority has opened such Demat Account with the Depository?

 

Ans. 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

 

  1. Whether the calculation of total voting rights will be different for the purpose of Act, 2013 and SEBI SAST Regulations, 2011?

 

Ans. The calculation of total voting rights/ power will be different for the purpose Act, 2013 and SEBI SAST Regulations, 2011. Rule 6 (6) of the IEPF Rules clearly states that the voting rights on the shares transferred to the IEPF Authority shall remain frozen until the real or rightful owner of such shares come forward to claim them.

 

However, the proviso to this rule is very interesting to state that for the purpose of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the shares which have been transferred to the IEPF Authority shall not be excluded while calculating the total voting rights. Therefore, we can understand the aforesaid provision with the help of an example:

 

Mr. A holds 30% voting power in X Ltd. The shares of Mr. A have been transferred to the IEPF suspense account. Now for the purpose of reckoning the total voting power in X Ltd. 70% voting power of the other shareholders will be taken to be 100% voting power of the company for all other purpose other than SEBI SAST Regulations, 2011.

 

Whereas, for the purpose of calculating total voting power under SEBI SAST Regulations, 2011, we will not exclude the voting power of Mr. A.

 

  1. What is the procedure to transfer demat shares to the IEPF demat account?

 

Ans. Under the Principal 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.

 

  1. What is the procedure for transferring physical shares to IEPF demat account?

 

Ans.  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.

 

  1. Whether transfer of dematerialized shares will be effected by the Depository (as stated in the Rules) or by the respective Depository Participants of the concerned shareholders?

 

Ans. As mentioned under rule 6 (3) (c) (ii) of the IEPF Rules, the depository shall effect the transfer of shares in favour of the Demat Account of the IEPF Authority.

 

  1. Whether only amounts / shares transferred to the IEPF under Section 125 of the Companies Act, 2013 can be claimed from the Fund or whether all unpaid or unclaimed dividend, debenture interest amounts etc. that were transferred to the IEPF under Section 205C of the Companies Act, 1956 can also be now claimed from the Fund?

 

Ans. Under the erstwhile Act there was no provision under which a shareholder could claim the amount transferred to the IEPF. However, on the enforcement of section 125 of the Act, 2013 and the IEPF Rules, the provision of law clearly states the particulars that can be claimed from the IEPF Fund by making an application in e-Form IEPF-5. These include the following:

 

Section 125 (3) of the Act, 2013 provides that the IEPF Fund can be utilized for –

 

  • Refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon.

 

Proviso to section 125 of the Act, 2013 provides that any person whose amounts referred to in clauses (a) to (d) of section 205C (2) of the erstwhile Act shall be entitled to get refund out of the IEPF Fund. The amounts referred to in the above proviso consist of:

 

  • amounts in the unpaid dividend accounts of companies;
  • application moneys received by companies for allotment of any securities and due for refund;
  • matured deposits with companies; and
  • matured debentures with companies.

 

It is pertinent to note here that the interest with respect the above amounts cannot be claimed by the person.

 

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.

 

  1. Whenever a person makes any claim from the Fund in respect of dividend or shares, the same shall be verified by companies and a verification report along with all documents received from the claimant shall be forwarded to the Authority. The Authority thereafter may settle the claim or may send a communication to the claimant detailing the deficiencies of the application. However, there is no provision made in the Rules for the Authority to inform the companies after any claim is settled. As a result, companies will be unable to reconcile the dividend or the share balances lying to the credit of the Fund with its records at any point of time.

 

Ans. The Rules provide that companies shall credit to the Fund all further entitlements arising out of the shares transferred to the Fund viz. bonus shares, dividend etc. However, if the balances lying to the credit of the Fund cannot be reconciled with the records of companies, how can companies compute the bonus and dividend entitlements of individual shareholders and credit the same to the Fund as required. Subsequently upon receipt of claims, the companies will not be able to ascertain the number of bonus shares or quantum of dividend to which an individual shareholder is entitled to.

 

We would like to inform that in Form IEPF-5, a nodal officer (IEPF) has been authorized to receive the prescribed attachments to the claim while the application for refund will be made. Accordingly every company shall nominate a nodal officer for the purpose of coordination with the IEPF Authority so as to ensure verification and processing of claims received in a time bound manner. This implies that such nodal officer of every company will be in receipt of the information regarding the processing and approval of the claim as he will be the only person nominated for the purpose of coordination with the IEPF Authority for refund claims. Therefore, as and when any claim will be approved, such nodal officer is expected to be informed by the IEPF Authority and accordingly, the company will also know the status of such claim. Hence, in such situation the companies will be able to reconcile the dividend or the share balances lying to the credit of the Fund with its records at any point of time.

 

  1. In cases where the claimant is a legal heir or successor or administrator or nominee of the shareholder and the shares of original shareholders have been transferred by companies to the Fund, the said shareholders would cease to exist in the records of such companies. Under such circumstances, how can the companies complete transmission process? Further, the Rules are silent about claims to be made by legal heirs or successors or administrators or nominees of shareholders who held shares in dematerialized form, where transmission process is required to be completed by the Depository Participants.

 

Ans. Completion of transmission process is a pre-requisite for making refund application where the claimant is a legal heir or successor or administrator or nominee of the shareholder. Such claimant will not be able to apply for refund if the transmission process is not completed.

 

Therefore, the claimant shall ensure that the transmission is completed before making refund application to the IEPF Authority. In case of shares held in demat mode the depository participant shall be responsible for the purpose of effecting transmission process.

 

Since the completion of transmission process is a pre-requisite for making claim, therefore companies as well as the depository participant, as the case may be, shall on the receipt of all required documents from such legal heirs or successor or administrator or nominee of the shareholder verify and confirm that the transmission process is completed. The process for effecting transmission can be viewed here: https://nsdl.co.in/services/trans.php.

 

Therefore, it cannot be said that such shareholder will cease to exist. His voting rights will be frozen and the shares will be held in demat account of IEPF Authority. The claimant can claim shares at any time.

 

When the claimant claims, the company has to verify the claim. Therefore, a company has to always maintain the records and complete transmission process in order to enable such claimant being the legal heir or nominee to approach IEPF.

 

  1. The actual amount to be transferred to the IEPF can be ascertained by a company on the day such amount becomes due for transfer to the IEPF as till such date all valid claims received from shareholders are required to be settled. The amount to be transferred to the IEPF can be therefore ascertained neither at the end of the financial year nor at the time of closure of accounts.

 

Ans. Under rule 8 (1) of the IEPF Rules, the company is required to state the amount standing in the 6th year that will be transferred to the IEPF in the subsequent financial year, i.e. expiry of the 7th year. Therefore, the amount can be ascertained at the end of the 6th financial year.

We would also like to draw your attention to the provisions of rule 8 (2) of the IEPF Rules which specifically states that in the event of any deviation with the amount specified to be transferred to the IEPF, the company shall state the reason for deviation. This provision itself signifies that the amount stated in the earlier IEPF-2 was just an estimate provided to the Authority for information purpose and the same was not an exact amount.

 

One of the reasons for deviation may include the valid claims received from shareholders that have been settled by the company.

 

  1. Suppose a company declares dividend in the year 2008-09, one of its shareholders does not claim the dividend for a consecutive period of 7 years from the year 2008-09. As per the IEPF Rules, in addition to the unpaid and unclaimed dividend for the year 2008-09 the underlying shares will also be transferred to the IEPF Authority in the FY 2015-16.

 

What will be the treatment of the dividend declared on such shares in the years 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15? Will such dividend shall also be transferred to the IEPF Fund in the FY 2015-16 itself or whether the company let such amount lie in the unpaid dividend account and wait for its due date for transfer to IEPF arrive?

 

Ans. Let us analyse the situation for transferring the unpaid or unclaimed dividend on year to year basis with the help of the following table:

 

F.Y in which the dividend is declared F.Y in which the same shall be transferred to IEPF Remaining period as on date (in years) for transferring to IEPF

 

2008-2009 2015-2016 0
2009-2010 2016-2017 1
2010-2011 2017-2018 2
2011-2012 2018-2019 3
2012-2013 2019-2020 4
2013-2014 2020-2021 5
2014-2015 2021-2022 6

 

As per section 124 (6) of the Act, 2013 read with rule 6 of the IEPF Rules, the shares for which any dividend which remains unpaid or unclaimed for a period of seven consecutive years shall be transferred to IEPF in accordance with the IEPF Rules.

 

As per the table given above, in case the dividend remains unpaid or unclaimed for a period of seven consecutive years, i.e. from FY 2008-09 to FY 2014-15, the underlying shares shall be transferred to the IEPF along with the dividend for the FY 2008-09.

 

In such an event where the shares have been transferred to the IEPF, the dividend for the FY 2009-10 till 2014-15 will still be lying in the unpaid dividend account. This means that a shareholder can claim dividend for the aforesaid period from the Company. But considering the fact that the shares for the said dividend has already been transferred to IEPF, and that as on date the shares are held by the IEPF, it will be very illogical to say that a shareholder who as on date does not even hold the shares, but can claim the dividend for the same.

 

Accordingly, in our view once the shares are transferred, the dividend for the remaining period till the date, i.e. from the FY 2009-10 till 2014-15, should also be simultaneously transferred to IEPF even though the language of law is silent on the same.

 

  1. Form IEPF 6 – Statement of unclaimed or unpaid amounts to be transferred the IEPF

    The content of the form in point 4(a) is as under:-

 

 

Say, a company has 2 different accounts with different months for transfer to IEPF but in the same F.Y. What date should the Company fill in the last column, supposing the Company add up the unpaid balance of both accounts? OR, should the Company file separate IEPF-6 for each of the account?

 

Ans. On perusal of the e-form IEPF-6, it can be concluded that the date by which the unpaid amount should be credited to the fund shall be mentioned in the e-form. Considering the present case, since the due date of transfer of two different account will not be the same date, we are of view that separate IEPF-6 should be filed for each account.

 

  1. Form 1-INV was not available for filing on the MCA portal since 25thMarch, 2016. Whether form IEPF-1 should also be filed by the Company for the amounts which has already been transferred to IEPF during that period?

 

Ans. IEPF-1 replaces the earlier form 1-INV. This form contains the details of amounts that has been credited to IEPF. MCA vide General Circular No 10/2016, dated 07.09.2016[3], has clarified that due to unavailability of corresponding form 1-INV on the MCA portal, companies that have not filed the requisite information in form 1-INV can now file the information in form IEPF-1.

 

Further as a onetime measure, for companies with due date of filing of form 1-INV between the period 24.03.2016 to 06.09.2016, the companies may file the form IEPF-1 without any additional fee on or before 06.10.2016.

 

  1. Who will be liable to transfer the shares in case of merger?

 

Ans. In case of merger, the transferor company will cease to exist, therefore, in our view the underlying shares on the unclaimed or unpaid dividend will be transferred by the transferee company.

 

  1. Whether the company is required to ignore pending transmission cases/ under process transmission etc. while transferring shares?​

 

Ans. While the Rules restrict transfer of shares in certain cases, however they are silent on the cases where there is claim on shares by way of transmission is pending with the company. While the legal heir/ successor etc. has placed a transmission request, the shares will not remain unclaimed but dividend may remain unclaimed. In such a case one may take a view that the shares should get transferred since the dividends remain unclaimed since there is always an option of claiming back the shares from the Authority. However, unless a transmission is effected the legal heir etc. will not be able to claim the dividend which has remained unclaimed. Considering the inability of the legal heir/ successor etc. for claiming dividend, the company may exercise their discretion with respect to transfer of shares before the completion of the transmission process. Even if the company decides to transfer the shares considering that the due date for transfer, the transmission process may be completed post which the legal heir can claim the shares form IEPF Authority.

 

  1. In case the company has already transferred the unpaid dividend to the IEPF u/s 205C of the 1956 Act, still the underlying shares will be required to get transferred to the IEPF?

 

Ans. The second proviso to rule 6 (1) of the IEPF Rules provides -” Provided further that in cases where the period of seven years provided under sub-section (5) of section 124 has been completed or being completed during the period from 7th September, 2016 to 31st October, 2017, the due date of transfer of such shares shall be deemed to be 31st October, 2017.

 

Further, section 124 (5) states-“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 and the company shall send a statement in the prescribed form of 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.”

 

Accordingly, the underlying shares to the unpaid or unclaimed dividend which has already been transferred to IEPF under section 205C of the Companies Act, 1956, will also be required to be transferred to the IEPF if the following cumulative pre-conditions are satisfied:

 

  • the dividend in respect of such shares have been unpaid or unclaimed for seven consecutive years; and
  • there has not been any transfer of shares with respect to the shares in question during the said period of seven consecutive years.

 

Therefore, in the instant case the underlying shares will be transferred to the IEPF in case it satisfies the above two requirements. Also, for the purpose of reckoning the due date for the purpose of transferring the shares the companies will have to see the status of unpaid or unclaimed dividend as on the date of the enforcement of section 124 and the IEPF Rules. Where the dividend is unpaid or unclaimed for seven consecutive years as on the date of the notification of the section and the rules, the underlying shares will be transferred in addition to the unpaid or unclaimed dividend.

 

  1. Dividend has been declared in the year 2006-2007 and the same remains unpaid, however in the next year the dividend has been encashed for the year 2007-2008. Given are the following situations that may arise.

 

      (i) What will be done if the dividend on the same shares remain unpaid or      unclaimed from 2008-2009 till date?

      (ii) In case the shareholder transfers all his shares?

      (iii) In case the shareholder transfers part of his shares?

      (iv) Company declares bonus shares during this period?

 

Ans. The answer to the above queries are the following:

 

(i) In the instant case, since the dividend has remained unpaid or unclaimed from the financial year 2008-2009 till date, the pre-condition of being unpaid for seven consecutive years has been fulfilled, therefore, the underlying shares will also be eligible to get transferred to the IEPF demat account in addition to the unpaid dividend which has already been transferred to the IEPF Fund.

 

(ii) In the instant case, since the original shareholder is not holding the shares on which dividend has remained unclaimed for seven consecutive years, therefore, the question of transferring the shares even if the new shareholder does not claim dividend in any of the years does not arise at all.

 

(iii) In case the original shareholder transfers only a part of his holding, in that case the part of the shares which is retained by the original shareholder will be transferred to the IEPF demat account subject to the fulfilment of the pre-condition mentioned in section 124 (6) of the Act, 2013.

 

(iv) In case the bonus issue is made in the year 2008-2009 and dividend on the same remains unpaid for seven consecutive years, the underlying shares for the such bonus issue shall be transferred to the IEPF demat account, however, if such bonus shares are issued post such period and do not fulfil the criteria of unpaid dividend, then the same shall not be required to be transferred. Further, in both the cases discussed above, the original shares will be transferred since it fulfils the pre-condition for the same.

 

  1. Whether the communication referred to in rule 6 (3) is informative in nature or a request to shareholders to claim their shares before the same is transferred to IEPF?

 

Ans.  There are two situations given under rule 6 (3) when the notice is to be given to the shareholders. These include:

  • On the expiry of 6 years and 9 months; and
  • After the expiry of 7 years.

 

Under both the situations, the intention of the communication is two-fold i.e. informing as well as requesting the concerned shareholders to claim their unclaimed dividend before the underlying shares are transferred to the IEPF demat account.

 

  1. Whether the shareholders can claim their shares within the period of 3 months as provided in the said rule? Whether the position would change, if the unclaimed dividend has already been transferred to IEPF?

 

Ans.  In our view there is no question of claiming the shares since the same continues to lie with the company and in the name of the respective shareholder. However, what is required to be claimed by the shareholder is the unpaid dividend.

 

However, on the second occasion when the unclaimed dividend has already been transferred to the IEPF, it is evident that seven consecutive years have already elapsed and thus shares can be claimed but from the IEPF.

 

  1. The registered shareholder has sold the concerned shares and hence not claiming the dividend. Further, the buyer of such shares has also not lodged the transfer deed for transfer of shares in his/her favour. In such scenario, as the dividend is unclaimed the same shall be transferred to IEPF suspense account. Please clarify the process whereby the buyer can claim the said shares from IEPF.

 

Ans. Any transfer of shares cannot be said to effected unless a share transfer deed has been executed by the concerned parties. Accordingly, the buyer will be required to lodge the transfer with the Company by providing all the supporting papers (like duly executed share transfer deed, etc.) to show the transfer of shares. Thereafter, the buyer has to follow the process mentioned under Rule 7 of the IEPF Rules and claim the shares from the IEPF Authority.

 

  1. The shares on which there has been a specific order given by the Court or Tribunal restraining its transfer and payment of dividend, whether the unclaimed dividend with respect to such shares be deposited in a separate bank account or could it continue to be kept in the unclaimed dividend account maintained with the scheduled bank?

 

Ans. Rule 6 (3) (b) of the IEPF Rules provides that in case there is a specific order of Court or Tribunal or statutory Authority restraining any transfer of such shares and payment of dividend, the company shall not transfer such shares to the IEPF. Nowhere does the rule puts a restriction on letting the unclaimed dividend lie in the unclaimed dividend account, therefore, the unclaimed dividend with respect to such shares can continue to be kept in the unclaimed dividend account maintained with the scheduled bank.

 

 

  1. Most of the companies may have kept the title to certain shares under abeyance since there are disputes over the title to such shares. In some cases, interim orders are served and in other cases, a copy of the plaint filed by the plaintiff is only served on the company. Please clarify whether such shares where the company is fully aware of the disputes and the matter is pending before a court of competent jurisdiction, are required to be transferred to IEPF?

 

Ans. In the instant case since the company in question is fully aware of the facts of the disputes and matter related thereto have either being already instituted or pending before the concerned authorities, therefore, in our view the transfer of such shares to the IEPF should be retrained. Further, as a matter for reporting, the details of such shares should be filed with the MCA in e-Form IEPF-3 by attaching the minutes of the stakeholder relation committee meeting wherein the decision on the aforesaid issue has been taken.

 

  1. Please clarify whether the application mentioned in Rule 6 (3) (d) (i) of the IEPF Rules will be on the letterhead of the concerned company and whether any documents will be required for making of the application?

 

Ans.  Since the rules are silent on the same, one may presume that the application may/may not be on the letterhead of the company.

 

Further, the following documents should not be mandatory to give as making of an application under the said rule is a legal requirement. The documents include:

 

  • Indemnity on a non-judicial stamp paper of appropriate value;
  • Affidavit on a non-judicial stamp paper of appropriate value, duly notarized;
  • FIR lodged with a police station regarding loss of the concerned share certificate;
  • Copy of public notice

 

  1. In case a company does not declare dividend in any year(s) during the consecutive period of 7 years but has declared the same before that, then whether it will be construed that dividend has remained unpaid unclaimed for 7 consecutive years for the purpose of transferring the shares to the IEPF.

 

Ans. The qualifying condition for transferring the shares to IEPF in the said case is the continuous failure on the part of the shareholder to claim dividend for seven consecutive years irrespective of the fact of the company that whether the company is declaring dividend or not in each of the seven years. Accordingly, the shares will be transferred to the IEPF demat account since the dividend on such shares, irrespective of when it has been declared, has remained unpaid.

 

  1. What if dividend already transferred to IEPF prior to the coming of the IEPF Rules, whether the same shall be treated unpaid?

 

Ans. The fact that the unpaid dividend has been transferred does not make the dividend paid for the purpose of section 124 (6) of the Act, 2013, therefore, in our view, for the dividend already transferred to the IEPF Fund , the underlying shares will still be required to be transferred to IEPF Fund.

 

  1. Whether e-Form IEPF-3 is required to be filed within thirty days of end of financial year ending on 31stMarch, 2017?

 

Ans. It is to be noted that the said e-Form is required to be filed within 30 days of the end of the financial year. However, since the due date for transferring the shares to the IEPF is 31st May, 2017, therefore, companies might face problem in deciding whether at all they need to file the said e-form for the year ending 31st March, 2017. One can say that since the due date for transferring the shares is after the time period for filing IEPF-3, therefore, this year the filing may not be done. It might also be possible in certain cases the restrain order on shares and/or dividend may be lifted or order may be changed, therefore, in our view, filing of the IEPF-3 should only be done by a company when it is sure on the status of the order on the date of filing.

 

  1. What is to be done in case a share certificate is required to be split while issuing duplicate share certificate for transfer of part of the holdings of a shareholder in favour of IEPF Authority? What is to be done with the duplicate share certificate for the balance shares which are not liable to be transferred in favour of IEPF Authority?

 

Ans. We did not understand the purpose of splitting the shares at the time of transfer. There might be a situation where the Company has either made bonus issue or rights issue or issued a jumbo certificate thereafter for the original as well as the additional shares. Accordingly, since the pre-requisite of seven consecutive years is not fulfilled on the additional shares, therefore, the split has to take place. If such is the situation, then Company may issue two duplicate share certificates and transfer the part which satisfies the pre-condition.

 

The Company may deal with the duplicate share certificate for the balance shares which are not liable to be transferred, in either of the ways:

 

  1. in case, if at the time of  issuing jumbo certificate, the same was returned undelivered to the Company, it may not dispatch the duplicate certificate to such shareholders at all; or
  2. in case the jumbo certificates were accepted by such shareholders, the Company can dispatch the duplicate share certificates to the shareholders and then if such duplicate certificates come undelivered, the same can be kept by the Company itself.

 

  1. Will the transfer of shares held in physical form in favour of IEPF Authority be reflected in the Annual Return to be filed by the company with the Registrar of Companies? If yes, how? If no, why?

 

Ans. Looking at the provisions of section 124 (6) of the Companies Act, 2013, the language states “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:

 

Even though in the instant case, the transfer is not in the nature permanent vesting of property so as to make the IEPF a permanent owner of the shares but it is a custodial transfer and in any case it is a transfer until it is reclaimed by the shareholder.

 

Accordingly, the transfer of shares to IEPF will be reflected in the annual return of the Company by mentioning the details of such transfer in filed IV (iii) of the e-Form MGT-7.

 

 

  1. What could be the intention to withdraw the circular dated 27thApril, 2017?

 

Ans. Please note that the General Circular dated 27.04.2017 specifically stated that NSDL will specify the operational procedures by 15th May, 2017, unfortunately NSDL was not able to come out with any such procedures within the said date. This could be one of the reason for withdrawing the aforesaid circular.

 

Apart from this, one reason could also be the uncertainty and ambiguity in the Ministry itself w.r.t. opening of the special demat account and its modalities.

 

  1. What are the penal provisions for non-compliance of the IEPF Rules?

 

Ans. On non-compliance of the IEPF Rules, IEPF Authority shall furnish its Report to the Central Government as and when non-compliance come to the knowledge of the IEPF Authority.

 

  1. Can IEPF Authority reject the application of the claimant made in IEPF-5?

 

Ans. In case, the IEPF Authority do not receive all the documents from the claimant within 90 days from the filing of IEPF-5, then the IEPF Authority may reject the Form after providing an opportunity to him to furnish response within a period of 30 days.

 

  1. In case the documents as attached in Form IEPF-5 are not sufficient or incomplete and further documents are sought for from the claimant, is there a time limit to provide the rectified documents to the IEPF? Whether IEPF Authority can reject such application?

 

Ans. Earlier IEPF Rules did not provide for any time limit for submitting rectified documents, IEPF Second Amendment Rules, 2017 provide for a time period of 90 days from the date of communication to submit rectified documents to the IEPF Authority. Further, IEPF Authority may reject the Form after providing an opportunity to him to furnish response within a period of 30 days.

 

  1. Is there a separate bank account for remitting the proceeds of cash benefits accruing under sub- rule 10, 11 and 12 of Rule 6 of IEPF Rules, 2016? If yes, what are those circumstances?

 

Ans. Cash benefit arising out of and in the form of the following, shall mandatorily be transferred to the bank account opened with PNB, Sansad Marg, New Delhi.

  • dividend from shares already transferred to IEPF;
  • proceeds realized on account of delisting of equity shares;
  • amount entitled on behalf of a shareholder in case of winding up of a company.

 

In cases other than the above, the same shall be transferred to separate accounts maintained with PNB and SBICAP Securities Limited.

 

Last updated on 2.11.2017

 

To refer our updated FAQs click here

 

[1] http://www.mca.gov.in/Ministry/pdf/Notification_06092016.pdf

[2] http://www.mca.gov.in/Ministry/pdf/Rules_06092016.pdf

[3] http://www.mca.gov.in/Ministry/pdf/Circular_102016_20160908.pdf

 

[1] http://iepf.gov.in/IEPF/pdf/IEPFNotification_13102017.pdf

[2] http://www.mca.gov.in/Ministry/pdf/GC12TranferofShares_16102017.pdf

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