Claiming of unclaimed amount by investors of listed entities!
Background: Regulation 4 of Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations, [‘IPEF Regulation’] provide for various amounts that can be credited to Investor Protection and Education Fund [‘IPEF’]. IPEF Regulation contained a blanket provision under regulation 4(1)(j) providing for credit of such other amount to IPEF as SEBI may specify.
However, a need to clearly specify the credit of unclaimed amounts lying with the listed entities and the unclaimed or unpaid amounts out of distributions by REITs and InvITs, in the IPEF Regulations, was necessitated by the fact that the utilization of such amounts differ from utilization of other amounts that are credited to the Investor Protection and Education Fund [‘IPEF’]. Hence it was necessary that regulation 4(1) of IPEF Regulation clearly specify credits that can be made to IPEF.
Regulation 5(1) and 5(2) of IPEF Regulation, provide specific purpose for which the IPEF can be utilized. However, as per regulation 5(3) of IPEF Regulation amount credited pursuant to regulation 4(1)(h) i.e., amounts disgorged under section 11B of Securities and Exchange Board of India Act, 1992 or section 12A of Securities Contract (Regulations) Act, 1956 or section 19 of Depositories Act, 1996 can be utilized unless it earmarked for some specific purposes. Further it needs to be highlighted that any unclaimed amount that gets transferred by a listed entity, REIT or InvIT, needs to be held in the IPEF on behalf of the investors, till it gets claimed.
In view of this it was also proposed that a suitable exception may be required under regulation 5 of IPEF Regulation, prescribing manner of utilization of unclaimed amounts, given the fact that the manner of utilization of such amounts shall differ from the utilization of other amounts credited to IPEF.
Introduction
SEBI has now vided its Securities and Exchange Board of India (Investor Protection and Education Fund) (Second Amendment) Regulations, 2023 [‘IPEF Second Amendment’] amended provisions of regulation 4 and regulation 5 of IPEF Regulations. Regulation 4 provides for amounts that can be credited to the IPEF and Regulation 5 provides for utilization of amounts credited to the Fund.
1. Amendment to regulation 4 of IPEF Regulations:
With this IPEF Second Amendment SEBI has brought the provisions of IPEF Regulations in line with the provisions of Regulation 61A (3) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, Regulation 18(16)(f) of Securities and Exchange Board of India (Real Estate Investment Trust) Regulations, 2014 and Regulation 18(16)(e) of Securities and Exchange Board of India (Infrastructure Investment Trust) Regulations, 2014. With this amendment regulation 4 of IPEF Regulation provides for receipt of money in IPEF from listed entities, real estate investment trusts and infrastructure investment trust.
2. Amendment to regulation 5 of IPEF Regulations:
SEBI has also replaced the provisions of regulation 5(3) of IPEF Regulations. With this amendment rewards from IPEF can be given to informants who provide original information to SEBI to recover amounts directed to be disgorged. Till now as per regulation 5(3) of IPEF Regulation amount could be given from IPEF for making restitution to eligible and identifiable investors who have suffered losses resulting from violation of securities laws.
Further SEBI has also stated that amounts credited to IPEF in accordance with regulation 61A(3) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, Regulation 18(16)(f) of Securities and Exchange Board of India (Real Estate Investment Trust) Regulations, 2014 and Regulation 18(16)(e) of Securities and Exchange Board of India (Infrastructure Investment Trust) Regulations, 2014 shall be utilized for refund to the entities transferring the said amounts pursuant to their making payment to eligible and identified investors and then making a claim to IPEF.
SEBI in its Board Note dt: September 21, 2023, has stated that for handling claims of investor, it is proposed to follow a procedure like that being followed by banks, for unclaimed deposits, as per directions of Reserve Bank of India under the Depositor Education and Awareness Fund Scheme, 2014. After transfer of unclaimed amount to the Fund, a claim shall have to be filed by an investor with the listed entity, REIT or InvIT, which shall verify the claim, process it, and make the payment to the investor. The amount payable to the investor shall not exceed the amount credited against such investor by the listed entity, REIT and InvIT in the IPEF. Thereafter, the listed entity, REIT or InvIT shall claim refund/reimbursement of the said amount from the Fund. The manner of making a claim and refund of money would be specified by SEBI separately.
Further the provisions of regulation 5(3) state that amount which is not earmarked for refund to the entities who have made payments to identified investors or for restitution to eligible and identifiable investors who have suffered losses resulting from violation of securities laws, can be utilized for purposes specified in regulation 5(2) of IPEF Regulation.
Conclusion
SEBI has now made enabling provisions for the transfer of unclaimed amounts by listed entities, InvIT and REITs to IPEF. With the procedure norms for claiming the same by concerned investors would take us step further in ease of doing business.
This is written by Mr. Vallabh M Joshi – Senior Manager – vallabhjoshi@mmjc.in
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