Dividends serve as a crucial aspect of shareholder returns, but what happens when these dividends go unclaimed? This article explores the provisions of the Companies Act 2013 (here in after referred as ‘Act’) regarding dividends and sheds light on the intricate process of dealing with unclaimed dividends.
Understanding Dividends:
Dividends represent the distribution of a company’s profits to its shareholders. The Companies Act 2013 specifies the legal framework for the declaration and payment of dividends. Section 123 of the ‘Act’ read with outlines the conditions and procedures for declaring dividends, ensuring that such distributions are made out of profits and comply with the law. Dividends can only be declared out of profits, either current or accumulated. Companies must adhere to the prescribed financial rules and standards to determine the availability of distributable profits.
In pursuant to Section 124 of the ‘Act’ read with the Rules made there under, Where a dividend has been declared by a company but not paid or claimed within thirty days (30 days) from the date of the declaration to any shareholder entitled to the payment of the dividend, the company shall, within seven days (7 days) from the date of expiry of the said period, 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’.
The company shall, within a period of ninety days (90 days) of making any transfer of an amount to the ‘Unpaid Dividend Account’, prepare a statement containing the names, their last known addresses and the unpaid dividend to be paid to each person and place it on the web-site of the company, if any, and also on any other web-site approved by the Central Government for this purpose, in such form, manner and other particulars as may be prescribed.
Transfer to Investor Education and Protection Fund (IEPF):
As per Section 125 of the ‘Act’ read with rules made thereunder if any money transferred to the ‘Unpaid Dividend Account’ of a company remains unpaid or unclaimed for a period of seven years (7 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 Section 125 (1) of the ‘Act. The IEPF serves as a safeguard for the interests of shareholders.
Also 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 the requisite information as may be prescribed in the rules.
Procedural Compliance to be followed by a Company to Transfer the Unclaimed Dividend and Shares to Investor Education Protection Fund (IEPF):
After the expiry of Seven years (7 years) from transferring the money to Unpaid Dividend Account if the Dividend still remains unclaimed then those dividends along with the shares against which the dividend is due for Seven Years (7 years) will be transferred to the Investor Education Protection Fund (IEPF).
From the Corporate point of view the following process needs to be followed by a Company for ensuring the compliance requirements regarding transferring the amount to IEPF.
Step 1- File Form IEPF 2 within 60 days from AGM date
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- Contact Register and Transfer Agent (‘RTA’) for IEPF 02 Excel File
- Prepare Form IEPF 02
- File the Form to MCA
- Upload Excel File by logging in using User ID Password generated after uploading Form IEPF 02.
Step 2- Follow up with the Scheduled Bank, in which the ‘Unpaid Dividend Account’ for the concerned year was opened to get the reconciliation statement and the amount details lying in such account.
Coordinate with the Bank on the process of closure of such unpaid dividend account and transferring the fund to IEPF Authority.
Step 3- Send the data received from bank to RTA.
Step 4- File Form IEPF 1 and generate challan.
Step -5- Go to pay Miscellaneous Fees in MCA services. Enter the required details and select option ‘NEFT payment’. A Challan for transfer of fund to IEPF Account will be generated.
Step 6- Send the Challan (generated in Step 4), Account Closure Board Resolution, along with the covering letter and other required documents as may be prescribed to the Bank.
Step 7- Bank will transfer the fund to IEPF Account and intimated the company the UTR No.
Step-8- Go to ‘Link NEFT payment’ in MCA Services and enter the UTR No. and other required details within 2 days of transfer of fund to IEPF Account. If the payment is not linked within the specified period of 2 days, the same shall be returned to the originating account. A challan will be generated.
Step-9- Upload the Investor Details (Excel file provided by RTA) using the User ID and Password in Form IEPF 1 Challan within 7 days of uploading Form IEPF 1 (steps for uploading excel file is mentioned in Form IEPF 1 Challan)
Step-10- Follow up with RTA for Corporate Action
Step 11- After completion of Corporate Action and File Form IEPF-4.
Claiming Unclaimed Dividends:
After the unpaid amount gets transferred to IEPF Authority, shareholders have the right to claim their dividends even after transfer to the IEPF. The process for claiming such dividends involves filing an application with the IEPF in Form IEPF 5.
The process of claiming unclaimed dividends and shares from the Investor Education and Protection Fund are given below:
Step 1: Accessing the MCA Website
Begin by visiting the MCA website and creating your login credentials. Once logged in, locate and open the ‘IEPF Form 5’.
Step 2: Filling Out the Form
Completing the form accurately is crucial. Provide your personal details, including your name, address, and contact information. Additionally, input your folio number, the number of shares, and the amount of unclaimed dividends. Make sure to choose the relevant options based on your case, such as determining the applicability of Rule 7. Don’t forget to include your bank and demat account details.
Step 3: Document Submission
Gather the necessary supporting documents, such as a copy of your PAN card, address proof, share certificates, or a letter of entitlement. Depending on your situation, you may also need documents for the duplicate process, bank and demat account details, and transmission documents. Compile these documents and attach them to your IEPF Form 5.
Step 4: Printing and Execution
Print out the completed IEPF Form 5 and the system-generated Indemnity Bond and SRN Acknowledgement. Ensure you execute these documents with proper notarizations and witnesses.
Step 5: Submission to the Nodal Officer
Submit the filled-out form and supporting documents to the Nodal officer of the concerned company. This is a crucial step in initiating the verification process.
Step 6: Verification by the Company or RTA
Once received, the company or its Registrar and Transfer Agent (RTA) will verify the submitted form and documents. Following a successful verification process, the company will file a report to the Government confirming the authenticity of the claim.
Step 7: IEPF Processing
The Investor Education and Protection Fund (IEPF) will process your claim upon receiving the verification report. Once approved, they will transfer the unclaimed shares to your demat account and the unpaid dividends to your designated bank account.
Conclusion:
The Companies Act, 2013, not only governs the distribution of dividends but also addresses the crucial issue of unclaimed dividends. By adhering to the provisions outlined in the Act, companies can ensure transparency and accountability in the process of dividend declaration and payment. Shareholders, in turn, should be aware of their rights and obligations to prevent their dividends from becoming unclaimed. Understanding and following the legal provisions related to dividends is paramount for both companies and shareholders to foster a robust and compliant corporate environment.
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