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INVESTOR EDUCATION AND PROTECTION FUND

♦ Applicability:

-Chapter VIII Declaration and Payment of Dividend – Section 123 to 127

Companies (Declaration and Payment of Dividend) Rules, 2014

Companies (Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016

Compliances:

1) Corporate Compliances

CORPORATE COMPLIANCES

SR.
NO.
PARTICULARS

(Applicable Section 123 – Declaration of Dividend)

1. What should be considered before payment of dividend?
•

•

•

  • Depreciation and Losses to be set off from the Profits of the company (current year or previous year )before payment of Dividend
  • Excluding any amount representing unrealized or notional gains or revaluation of assets from the profits of the company
  • Company may transfer profit to Reserves of the company before declaration of Dividend
2. Can Dividend be paid out of Reserve of the Company?
•

•

  • Yes, Dividend can be paid out of the Free Reserves of the company
  • Even in case of inadequacy or absence of profits in any financial year subject to the fulfillment of conditions prescribed under the rules
3. Can a company pay Interim Dividend?
•

•

•

  • Yes, Company may pay interim dividend at any time during the closure of FY till holding of Annual General Meeting.
  • Company may declare interim dividend:

√ out of the surplus in the P/L account of the company or

√ out of profit of financial year for which the interim dividend is declared or

√ out of the profit in the financial year till the end of quarter preceding declaration of dividend

In case the company has incurred loss during the current financial year upto the end of quarter immediately preceding the date of declaration of Interim Dividend then the company,

√ shall not declare dividend at a rate higher than the average rate of dividend declared during immediately preceding 3 financial year

4. Do company need to open a separate Bank Account?
•

•

  • Yes, the Company needs to open a separate account in a Scheduled Bank.
  • Deposit the amount of dividend in the bank account within 5 days of declaration of dividend.
5. Mode of Payment of Dividend?
•
  • Dividend payable in cash may be paid through cheque or warrant or in any electronic mode to the shareholders entitled to payment of dividend.
6. In case of Inadequacy of profit can a company declare dividend?
•

√ Rate shouldn’t exceed the average rate of dividend paid by company in immediately preceding 3 FY.

√ Total amount to be drawn from such fund shouldn’t exceed 1/10th of PUC+FR as per latest audited Financial Statement.

√ Amount drawn shall first be utilized to set off the losses of company of the year in which dividend is declared

√ Balance of reserves after such withdrawals shall not fall below 15% of PUC as per latest audited Balance sheet.

Example: If ABC Ltd. has declared dividend in the year 2013-14 for Rs. 1.60/- per share and the AGM of the Company was held on 15th September, 2014, then the following are the dates for the purpose of complying with IEPF Rules:

Sr.
No.
Applicable Provision Particulars Time limit Relevant
Date
1) Annual General Meeting of the Company D 15/09/2014
2)
124 (1) Dividend declared but not paid or claimed by shareholder within 30 days of declaration of dividend D+30 15/10/2014
3) 124 (1) The company within 7 days from expiry of 30 days transfer the dividend to Scheduled Bank under the name of “UNPAID & UNCLAIMED DIVIDEND ACCOUNT” D+30+7 22/10/2014
4) 124 (5) Rule 5 (8) Filing of Form IEPF-2 Statement of Unpaid and Unclaimed Dividend amount D+60days 14/11/2014
5) Section 124 (2) Rule 5 (8) Within 90 days of transfer to
Unpaid Dividend & Unclaimed Account display
the Statement of unclaimed dividend on the website of the company
D+30+7+90 20/01/2015
6) Rule 6 (3) (a) Advertisement in newspaper 3 months prior to due date for
transfer of shares and dividend to the Investor
Protection & Education Fund (IEPF)
(D+30+7)+6yrs+9 months 22/07/2021
7) Rule 6 (3) (a) NOTICE to Shareholder 3 month prior to the due date of transfer of shares & dividend to IEPF (D+30+7)+6yrs+ 9months 22/07/2021
8)
124 (6) Transfer to IEPF due date will be 7 years from the transfer of dividend to unclaimed and unpaid dividend account (D+30+7)+7yrs 22/10/2021
9)
124 (5) Rule 5 (1) Filing of Form IEPF-1 within 30 days of amount becoming due to be credited in IEPF (D+30+7)+7yrs Within 30
days from 22/10/2021
10)
Rule 6 (8) Filing of Form IEPF-4 within 30 days of Corporate Action of Transfer of Shares to IEPF account. Corporate Action + 30 days
11)
Section 124 (7) Penalty:

  • Company:

√ Rupees 1 Lakh

√ Rupees 5000 each day subject to maximum of Rupees 10 Lakhs ( in case of continuing failure)

  • Officer in Default:

√ Rupees 25,000

√ Rupees 100 each day subject to maximum of rupees 2 lakhs ( in case of continuing failure)

  • The last date as per above example for the shareholders to claimant he shares before it gets transferred to IEPF would be 16/10/2014
  • If any default is made by company in transferring the amount to Unpaid Dividend & Unclaimed Dividend Account, it shall be liable for interest at 12% p.a. for the default. [Section 124 (3)]
  • In case any dividend is paid or claimed for any year during the period of 7 years, then the shares shall not be transferred to IEPF.
  • The voting rights shall be frozen until the rightful owner claims the shares.
  • All the benefit accruing on the shares transferred to IEPF except the right issue shall be credited to IEPF only and mentioned under Form IEPF – 4.
  • If the shares of company gets delisted or the company gets wound up or the company declares dividend on the shares already transferred to IEPF then, details of such shares shall be furnished by the company in Form IEPF – 7 to the Authority.
  • For effecting the transfer of shares company need to follow the process as specified under Rule – 6

SECTION 125 Investor Education & Protection Fund

  • The Central Government shall establish a fund to be called as Investor Education & Protection Fund
Section Particulars Remark
125(2) Amount to be Credited to
the fund
  • Donations or grants given by Central Government
  • Amount in Unpaid Dividend Account of the company
  • the interest or other income received out of investments made from the Fund
  • application money received for allotment and due for refund
  • Matured Deposits or Debentures
  • Any interest on the points D, E and F
  • Sales proceeds of fractional shares arising out of issuance of bonus shares, merger & amalgamation for 7 or more years
  • redemption amount of preference shares remaining unpaid or unclaimed for 7 or more years
  • all shares as well as the resultant benefits on such shares
125(3) Funds shall be utilized for
  • the refund of unclaimed dividends, matured deposits, matured debentures, the application money due for refund & 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 u/s 37 and 245 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
  • CG may constitute a authority for administration of funds consisting of Chairperson, member not exceeding 7 & CFO
  • Authority shall maintain proper accounts and other relevant records and prepare a statement annually in the form as specified by the CG.
  • Audit of the Records maintained by the authority would be conducted by Comptroller & auditor General of India.

Section 126 Right to Dividend, Rights Shares and Bonus Shares to be Held in Abeyance Pending Registration of Transfer of Shares

Sr. No. Particulars
1. Can transferee claim the dividend if the company hasn’t registered the transfer of share?
  • The dividend would be transferred to Unpaid Dividend Account as per section 124
  • Except the Registered holder of shares authorize in writing for such payment to transferee

Section 127 Punishment for failure to Distribute Dividend:

Sr. No. Particulars
1. What if Company fails to pay dividend or to post the warrant within 30 days of declaration of dividend?
  • Director if knowingly a part to default:

√ Imprisonment: Extendable to 2 years

  • &

√ Fine: not less than 1000 Rs. Everyday till the default continues

  • Company liable for 18% of simple interest p.a. till the default continues
2. Exceptions to offence under this section
  • where the dividend could not be paid by reason of the operation of any law;
  • where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with and the same has been communicated to him;
  • where there is a dispute regarding the right to receive the dividend;
  • where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder; or
  • where, for any other reason, the failure to pay the dividend or to post the warrant within the period under this section was not due to any default on the part of the company

Investor Education & Protection Fund- Detailed Analysis

FORM SUMMARY:

FORM PARTICULARS TIMELINE OF FORM
IEPF 1 Statement of amount credited to IEPF Within 30 days of amount becoming due to be credited.
IEPF 2
  • Statement of unclaimed/unpaid amount &
  • Details of Nodal officer
  • Within 60 days of AGM
  • Within 15 days of the rule/ any change in nodal officer within 7 days of such change.
IEPF 3 Statement where transfer of amount to IEPF is not required Within 30 days of end of FY.
IEPF 4 Statement of shares transferred to IEPF Within 30 days of corporate actions by company.
IEPF 5 Claimant files the claim
IEPF 7 Transferring of funds to IEPF in specified bank account. In following cases:

  • Company delist
  • Company wound up
  • Any further dividend (shares already transferred)
Within 30 days of transferring funds to IEPF.

FORM IEPF-1

Statement of Amounts Credited to Investor Education & Protection Fund:

Sr.
No.
Particulars Remarks
1. Applicability Section 124 & Rule 5(1)
2. Purpose File Statement of amounts credited to Investor Education and Protection Fund
3. Time-limit Within 30 days of amount becoming due to be credited to IEPF
4. Includes What?

(Except Company
details)

  • The amount to be credited to IEPF account:

1. Amount from Unpaid dividend

2. Application money received but due to be refunded

3. Matured deposit/debenture by the company

4. Interest accrued on 2 and 3

5. Sale proceeds of any issuance of bonus shares or merger & amalgamation

6. Redemption amount of preference shares

7. Grant or donation

  • Along with the due date of amount to be credited to fund.
  • Financial year to which the amount relates
5. Website Disclosure?

*Rule: Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]

FORM IEPF-2

Statement of unclaimed and unpaid amounts and details of Nodal Officer

Sr.
No.
Particulars Remarks
1. Applicability Section 124 & Rule 5(8) and 7 (2B)
2. Time-limit
  • Within 60 days of holding of Annual General Meeting
  • Within 7 days in case of change in details of nodal officer
3. Purpose
  • Statement of unclaimed and unpaid amounts
  • Appointment of Nodal Officer
  • Appointment of Deputy Nodal Officer
  • Updation of details of Nodal Officer only
  • Updation/Cessation of details of Deputy Nodal Officer only
4. Includes What? (Except Company
details)
  • Details of Nodal officer (if filing for that purpose)
  • Details of Unclaimed and Unpaid amount for Previous 7 years
  • Amount of dividend declared on shares
    transferred to IEPF during the current year
  • Any other benefit declared on the shares lying IEPF during the year
5. Attachment Board Resolution in case of Appointment of Nodal Officer
6. Website Disclosure? A statement of unclaimed & unpaid amount separately for each of the previous 7 years (IEPF 2 Template)

*Rule: Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]

FORM IEPF-3

Statement of shares and unclaimed or unpaid dividend not transferred to the Investor
Education and Protection Fund

Sr.
No.
Particulars Remarks
1. Applicability Section 124 (6) & Rule 6 (3)
2. Time-limit Within 30 days from the end of Financial Year
3. Purpose
  • Due to the order of court or Tribunal or any statutory authority;
  • if the company does not transferthe
    amount/shares;
  • then all such details shall be filed by the company/bank.
4. Includes What?

(Except Company
details)

Details of shares and dividend not transferred to IEPF account such as :

  • Folio no. /DP-Client ID account
  • Kind of share
  • Nominal Amount of Shares
  • Amount of unpaid/unclaimed dividend
  • Name and date of Court/Tribunal order
  • Financial year to which it relates
5. Attachment Court/Tribunal/Statutory Authority Order
6. Website Disclosure?

*Rule: Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]

FORM IEPF-4

Statement of shares Transferred to Investor Education & Protection Fund

Sr.
No.
Particulars Remarks
1. Applicability Rule 6 (5), 6 (8), 6A(5), 6A(8)
2. Time-limit Within 30 days of Corporate Action
3. Purpose Statement of Shares to be transfer to IEPF account maintained by Government
4. Includes What?

(Except Company
details)

  • Total Number and Total Nominal Amount of Shares to be transferred to IEPF
  • Date of Corporate Action to demat the shares to IEPF Account
  • Financial Year to which the amount relates
5. Attachment Copy of Newspaper advertisement
6. Website Disclosure?

*Rule: Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]

FORM IEPF-7

Statement of amounts credited to IEPF on account of shares transferred to fund

Sr.
No.
Particulars Remarks
1. Applicability Rule 6 (14) and 6A(13)
2. Time-limit Within 30 days of transferring the amount to IEPF
3. Purpose Statement of Amount to be transferred to IEPF
4. Includes What?

(Except Company
details)

Transaction details such as:

√ Transferee Bank Name

√ Bank Transaction ID

  • Details of amount transferred to bank account of the fund:

√ Dividend

√ Proceeds realized from delisting of shares

√ Proceeds realized from winding up of
company

√ Financial year to which the amount relates

5. Attachment Copy of Resolution declaring dividend/winding up order/delisting order
6. Website Disclosure?

*Rule: Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]

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