Procedure under the Companies Act, 2013 and IEPF Rules, 2016
Introduction
Equity shares for which dividends have remained unpaid or unclaimed for 7 consecutive years or more are subject to transfer, to the demat account, of the Investor Education and Protection Fund (IEPF) Authority. This ensures that unclaimed financial assets are safeguarded and can be reclaimed by rightful owners later. The procedure involves identifying such shares, informing shareholders, transferring them to the IEPF’s Demat account, and filing necessary forms with the Ministry of Corporate Affairs (MCA).
Applicable Provisions
The following provisions govern this procedure:
1. Section 124 and Section 125 of the Companies Act, 2013.
2. Rule 5 and Rule 6 of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.
Section 124 – Unpaid Dividend Account (Bare Act)
The following is the text of Section 124 of the Companies Act, 2013 as relevant to this procedure:
“(1) Where a dividend has been declared by a company but has not been paid or claimed within thirty days from the date of the declaration to any shareholder entitled to the payment of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days, transfer the total amount of dividend which remains unpaid or unclaimed to a special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account.”
“(5) 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’’
“(6) 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 ‘’
Section 125 – Investor Education and Protection Fund (Bare Act)
The following is the text of Section 125(1) and 125(3) of the Companies Act, 2013 as relevant to this procedure:
“(1) The Central Government shall establish a Fund to be called the Investor Education and Protection Fund (herein referred to as the Fund).”
‘’(3) The Fund shall be utilised for–
(a) the refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon;
(b) promotion of investors education, awareness and protection;
(c) 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;
(d) reimbursement of legal expenses incurred in pursuing class action suits under sections 37 and 245 by members, debenture-holders or depositors as may be sanctioned by the Tribunal; and
(e) any other purpose incidental thereto, in accordance with such rules as may be prescribed:
Provided that the person whose amounts referred to in clauses (a) to (d) of sub-section (2) of section 205C transferred to Investor Education and Protection Fund, after the expiry of the period of seven years as per provisions of the Companies Act, 1956 (1 of 1956), shall be entitled to get refund out of the Fund in respect of such claims in accordance with rules made under this section.
Explanation-The disgorged amount refers to the amount received through disgorgement or disposal of securities.’’
“(6) Any claimant of shares under sub-section (6) of section 124 or of amounts referred to in clause (a) or clause (b) of sub-section (3) shall be entitled to get refund out of the Fund in respect of such claims in accordance with rules made under this section.”
Mandatory Requirements
Before transfer, the company must:
1. Identify unclaimed dividends and unclaimed shares.
2. Intimate shareholders about the impending transfer.
3. Disclose the list of shareholders whose shares are transferred to IEPF on the company’s website.
Procedure
1. Identification of Eligible Shares
Shares associated with unclaimed dividends for 7 consecutive years should be identified. If any dividend is paid or claimed for any year during the said period of 7 consecutive years, the share shall not be transferred to IEPF.
2. Intimation to Shareholders
i. Company shall inform the concerned shareholder, at their latest available address, about the proposed transfer of shares, at least three (3) months prior to the due date of such transfer.
ii. The intimation letter must include the following:
-
- Purpose of the intimation regarding proposed transfer of shares to IEPF.
- Reference to relevant provisions of the Companies Act, 2013 and IEPF Rules.
- Statement that dividends have remained unclaimed for 7 consecutive years.
- Details of the unclaimed dividend years and corresponding shares.
- Name of the shareholder and identification details (Folio No. / DP ID – Client ID).
- Due date of proposed transfer to IEPF.
- Instructions to claim unpaid dividends before the due date to avoid transfer.
- Consequences of no action being taken (transfer of shares and benefits to IEPF).
- Information on how to reclaim shares/dividends after transfer via Form IEPF-5.
- Contact details of the company or RTA for assistance.
- Disclaimer that this is a mandatory legal compliance communication.
3. Convene a Meeting of the Board of Directors
i. Company shall pass a Board Resolution at a duly convened meeting of the Board of Directors, approving the transfer of shares to the Investor Education and Protection Fund (IEPF) in accordance with applicable provisions.
ii. The Board shall also authorize the Company Secretary or any one of the Directors to undertake all necessary actions, execute the required procedure, and sign all relevant documents pertaining to the transfer of shares.
4. Publish Notice in Newspaper
Company shall simultaneously publish a notice in a leading English and regional language newspaper with wide circulation, informing shareholders that the names of such shareholders, along with their folio numbers or Depository Participant (DP) ID–Client ID, are available on the company’s website. The notice shall also clearly mention the website address.
5. Inform Depository for Transfer of Shares
Company shall inform the depository for transfer of shares to the IEPF Authority as follows:
i. In case shares are in Electronic (Demat) Form:
Initiate a corporate action with the respective depository to facilitate the transfer of shares held by shareholders in demat form to the IEPF Authority’s demat account.
Shareholders’ details, including their DP ID and Client ID, number of shares, and the relevant financial year for which dividends remained unclaimed, shall be provided in the corporate action form.
Upon approval, the depository will affect the transfer of such shares to the IEPF demat account.
ii. In case shares are in Physical Form:
Company Secretary, or any person authorized by the Board, shall submit an application on behalf of the concerned shareholder to the company for the issuance of a new share certificate.
On receipt of the application, a new share certificate for each such shareholder shall be issued and it shall be stated on the face of the certificate that “Issued in lieu of share certificate no. for the purpose of transfer to IEPF” and the same shall be recorded in the register.
Particulars of every share certificate shall be in Form No. SH-1 as specified in the Companies (Share Capital and Debentures) Rules, 2014.
After issue of a new share certificate, the company shall inform the depository by way of corporate action to convert the share certificates into Demat form and transfer in favor of the IEPF Authority.
Note: Company shall make transfer of shares through corporate action and shall preserve copies for its records.
6. File Form No. IEPF-4 with IEPF Authority
i. A statement in Form IEPF-4 is to be submitted to the IEPF Authority, within 30 days of the corporate action, providing details of the share transfer. Additionally, a copy of the public notice published, as per the requirements of Form IEPF-4, is also to be attached.
ii. All benefits accruing on such shares like bonus shares, split, consolidation, fraction shares and the like except right issue shall also be credited to such Demat account by the company, which shall send a statement to the Authority in Form No. IEPF-4 within thirty (30) days of the corporate action containing details of share transfer.
Important Notes:
i. In case any dividend is paid or claimed for any year during the said period of 7 consecutive years, the share shall not be transferred to IEPF.
ii. Shares transferred to IEPF will have frozen voting rights until claimed by the rightful owner.
iii. Transferred shares must be included when calculating total voting rights under SEBI (SAST) Regulations, 2011.
iv. In case, where there is a specific order of Court or Tribunal or statutory authority restraining any transfer of shares and payment of dividend or where such shares are pledged or hypothecated under the provisions of the Depositories Act, 1996 or shares already been transferred to the authority, then company shall not transfer such shares to the Fund. Company shall furnish details of such shares and unpaid dividend to the Authority in Form No. IEPF-4 within 30 days from the end of financial year.
7. Update on Company’s Website
Company shall upload on its website the details of shareholders whose shares are liable to be transferred to the IEPF, including their names, folio number/DP ID-Client ID, and number of shares.
Forms Required
The following forms are to be filed as part of this process:
- Form IEPF-1: For transferring unpaid/unclaimed dividend amounts to the IEPF.
- Form IEPF-4: For reporting transfer of shares to the IEPF Authority. To be filed within 30 days of corporate action. Copy of newspaper notice to be attached.
- Form IEPF-5: Filed by the shareholder to reclaim transferred shares or dividends from IEPF.
- Form No. SH-1: Share certificate particulars, as prescribed under the Companies (Share Capital and Debentures) Rules, 2014. Required when shares are in physical form.
Timeline
The key deadlines in this process are:
- Unpaid dividend must be transferred to the Unpaid Dividend Account within 7 days of the 30-day period expiring from the date of declaration.
- Once dividend remains unclaimed for 7 consecutive years in the Unpaid Dividend Account, it must be transferred to IEPF.
- Shareholder intimation must be sent at least 3 months before the due date of transfer.
- Newspaper notice and website disclosure must be done simultaneously with or before the intimation.
- Board Resolution must be passed before initiating corporate action.
- Form IEPF-4 must be filed within 30 days of the corporate action for transfer.
Details of transferred shares must be uploaded on the company’s website within 90 days of making the transfer under sections 124(5)
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