Introduction: Delve into the intricate framework of the Investor Education and Protection Fund (IEPF), an initiative by the Government of India aimed at fostering investor awareness and safeguarding their interests. This comprehensive guide unveils the fund’s meaning, features, administration, and the impactful utilization of its funds.
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Meaning of Investor Education and Protection Fund (IEPF)
The Investor Education and Protection Fund (IEPF) is a fund established by the Government of India to promote investor awareness and protect the interests of investors. The fund was created under the provisions of the Companies Act 1956, and later under the Companies Act 2013.
As per section 125(1) of the Companies Act 2013, the Central Government shall establish a Fund to be called the Investor Education and Protection Fund.
Features of Investor Education and Protection Fund (IEPF)
1. Unclaimed Dividends and Shares: The primary source of funds for IEPF is the unclaimed dividends and shares of companies. When dividends declared by companies are not claimed by shareholders or when shares are left unclaimed, the amounts are transferred to the IEPF.
2. Investor Education: The fund is used to finance initiatives aimed at educating investors about financial markets, investment opportunities, and the importance of making informed investment decisions.
3. Refund to Investors: In cases where the rightful owners of unclaimed dividends or shares come forward, they can claim their money or securities from the IEPF.
4. Protection of Investor Interests: The IEPF plays a role in safeguarding the interests of investors by ensuring that unclaimed funds are used for their benefit and by promoting transparency and accountability in the financial system.
5. Rules and Regulations: The rules and regulations governing the IEPF are specified by the Ministry of Corporate Affairs in India. These rules outline the process for transferring unclaimed amounts to the fund and the procedures for claiming refunds.
Administration of IEPF
The oversight of the IEPF rests in the hands of the IEPF Authority, led by a chairperson and a chief executive officer, along with a maximum of seven other members appointed by the Central Government. Charged with administering the IEPF funds, the Authority diligently maintains distinct accounts and pertinent records, following consultations with the Comptroller and Auditor-General of India. These funds embody the cumulated amounts ascribed to the IEPF in accordance with the stipulations of the Act.
Amounts credited to the Fund- Section 125(2)
The Act provides that the following amounts will be credited to the IEPF:
1. The amount given by the Central Government as grants after due appropriation made by Parliament for utilising them for the purpose provided under the Act.
2. Donations given to the fund by the Central Government, state governments, companies or any other institution for utilising them for the purpose provided under the Act.
3. The amount in the unpaid dividend account transferred to the IEPF by the companies when they remain unpaid/unclaimed for seven years from the transfer date. The company will transfer the unpaid dividend account amount along with interest accrued, if any, to the IEPF as per Section 124(5).
4. The amount in the general revenue account of the Central Government transferred to that account under Section 205A (5) of the Companies Act, 1956, remaining unpaid or unclaimed on the commencement of the Companies Act, 2013.
5. The amount lying in the Investor Education and Protection Fund (IEPF) under Section 205C of the Companies Act, 1956.
6. The interest or other income received from investments made from the IEPF amount.
7. The amount received under Section 38(4).
8. The application monies (along with interest accrued thereon) that the company receives upon allotment of any securities and are due for refund and remain unclaimed and unpaid for seven years from the date it was due for payment.
9. The matured deposits (along with interest accrued thereon) with companies other than banking companies remained unclaimed and unpaid for seven years from the date it was due for payment.
10. The matured debentures with companies and interest accrued on these remained unclaimed and unpaid for seven years from the date it was due for payment.
11. The sale proceeds of fractional shares arising out of bonus shares issuance, merger and amalgamation for seven or more years.
12. The redemption amount of preference shares remains unclaimed or unpaid for seven or more years.
Utilisation of funds- Section 125(3)
The Act provides that the IEPF Authority will utilise and spend the IEPF amount only for the following purposes:
1. Refund in respect of matured debentures, matured deposits, unclaimed dividends, the application money due for repayment and its interest thereon.
2. Promotion of investors’ awareness, education, and protection.
3. Distribution of any disgorged amount amongst identifiable and eligible applicants for debentures or shares, debenture-holders, shareholders, or depositors who have suffered losses due to wrong actions by any person, as per the court orders of disgorgement.
4. Reimbursement of legal expenses incurred for pursuing class-action suits under Sections 37 and 245 of the Act by debenture-holders, members, or depositors as may be sanctioned by the National Company Law Tribunal.
5. Any other purpose incidental to the purposes mentioned above.
Audit- Section 125(10)
The accounts of the Fund shall be audited by the Comptroller and Auditor-General of India at such intervals as may be specified by him and such audited accounts together with the audit report thereon shall be forwarded annually by the authority to the Central Government.
Annual Report- Section 125(11)
The authority shall prepare in such form and at such time for each financial year as may be prescribed its annual report giving a full account of its activities during the financial year and forward a copy thereof to the Central Government and the Central Government shall cause the annual report and the audit report given by the Comptroller and Auditor-General of India to be laid before each House of Parliament.
Conclusion: The IEPF emerges as a crucial entity, contributing to investor education and protection. Its multifaceted approach, from sourcing funds to their meticulous utilization, showcases its commitment to enhancing financial awareness and safeguarding the interests of investors.
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DISCLAIMER:- This Blog is for the purposes of information/knowledge and shall not be treated as solicitation in any manner or for any other purposes whatsoever.
Feel free to contact the author for further clarification at 9953808432 or via mail at [email protected]. The author is the founder of SINGHANIA & ASSOCIATES (Practicing Company Secretaries Firm) based in Delhi.
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