Unpaid and Unclaimed Dividend - Treatment and Transfer to Investor Education and Protection Fund
(a) Investor Education and Protection Fund (IEPF) has been set-up under Section 205C of the Companies Act, 1956 by way of the Companies (Amendment) Act, 1999. As per the Act, the following amounts which have remained unclaimed and unpaid for a period of seven years from the date they became due for payment shall be credited to the IEPF:
- Unpaid dividend accounts of the companies.
- The application moneys received and due for refund.
- Matured deposits.
- The interest accrued in the amounts referred to in clauses (1) to (3).
- Matured debentures.
- Grants and donations by the Central Govt., State Govt., companies or any other institutions.
- The interest or other income received out of the investments made from the Fund.
The Fund has been established with a view to support the activities relating to investor education, awareness and protection.
The Act provides for setting up of a Committee for taking decisions regarding spending moneys out of the Fund for carrying out the objects.
For the purpose of administration of IEPF, the Investor Education and Protection Fund (awareness and protection of investors) Rules were notified which contain provisions relating to constitution and functions of the Committee, activities relating to investors’ education, awareness and protection to be undertaken with the recommendation of the Committee, conditions for utilisation of Funds by the Committee, proforma for applications for registration of associations, institutions or organisations and also for seeking financial assistance under IEPF, etc.
Now, Section 125 of the Companies Act, 2013 provides detailed provisions as to establishment of Fund. Under Section 125(1) of the Act, The Central Government shall establish a Fund to be called the Investor Education and Protection Fund (herein referred to as the Fund).
(b) As per Sub Section (2) of the Act, there shall be credited to the Fund:
- 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.
- Donations given to the Fund by the Central Government, State Governments, companies or any other institution for the purposes of the Fund.
- The amount in the Unpaid Dividend Account of companies transferred to the Fund under subsection (5) of section 124.
- 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.
- The amount lying in the Investor Education and Protection Fund under section 205C of the Companies Act, 1956.
- The interest or other income received out of investments made from the Fund.
- The amount received under sub-section (4) of section 38.
- The application money received by companies for allotment of any securities and due for refund.
- Matured deposits with companies other than banking companies.
- Matured debentures with companies.
- Interest accrued on the amounts referred to in clauses (8) to (10).
- Sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for seven or more years.
- Redemption amount of preference shares remaining unpaid or unclaimed for seven or more years, and
- Such other amount as may be prescribed.
(c) According to Sub-Section 3, the fund shall be utilised for:
- The refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon.
- Promotion of investors’ education, awareness and protection.
- Distribution of any disgorged amount among eligible and identifiable applicants for shares or debentures, shareholders, debenture-holders or depositors who have suffered losses due to wrong actions by any person, in accordance with the orders made by the Court which had ordered disgorgement.
- Reimbursement of legal expenses incurred in pursuing class action suits under sections 37 and 245 of the Act by members, debenture-holders or depositors as may be sanctioned by the Tribunal, and
- Any other purpose incidental thereto, in accordance with such rules as may be prescribed:
(d) The following procedure should be followed by the company while transferring unpaid or unclaimed dividend from unpaid dividend account to IEPF:
- Section 124(5) of the Act, provides that any money transferred to the unpaid dividend account of a company which remains unpaid or unclaimed for a period of seven years from the date of such transfer is required to be transferred by the company along with interest accrued, if any, thereon to the Investor Education and Protection Fund (IEPF) established under Section 125.
- The amount shall be remitted into the specified branches of State Bank of India or any other nationalized bank along with challan (in triplicate) within a period of 90 days of such amount becoming due to be credited to the IEPF. The Bank will return two copies duly stamped to the Company as token of having received the amount and the company shall file one such copy of challan to the authority.
- The company shall send a statement of amount credited to Investor Education and Protection Fund in Form DIV 5 to the authority which administer the fund and the authority shall issue a receipt to the company as evidence of such transfer.
- On receipt of this statement, the authority shall enter the details of such receipts in a register maintained by it in respect of each company every year and reconcile the amount.
- The company shall keep a record consisting of names, last known addresses of the persons entitled to receive the same, the amount to which each person is entitled, folio number/ client ID, certificate number, beneficiary details etc. of the persons in respect of whom amount has been remain unpaid or unclaimed for 7 years and transferred to IEPF. Such record shall be maintained for a period of 8 years from the date of such transfer to IEPF and authority shall have the powers to inspect such records.
(e) Any person claiming to be entitled to the amount referred in sub-section (2) may apply to the authority constituted under Sub-Section (5) for the payment of the money claimed.
(f) The Central Government shall constitute, by notification, an authority for administration of the Fund consisting of a Chairperson and such other members, not exceeding seven and a chief executive officer, as the Central Government may appoint.
(g) The manner of administration of the Fund, appointment of chairperson, members and chief executive officer, holding of meetings of the authority shall be in accordance with such rules as may be prescribed.
(h) The Central Government may provide to the authority such offices, officers, employees and other resources in accordance with such rules as may be prescribed.