The Saga of IEPF

Before knowing what is IEPF and what are the compliances, rules and other working are attached to it. We start from the very basic that is from the declaration of dividend.

So, A Company declares dividend as per section 123. Section 123(4) states that The amount of the dividend, including interim dividend, shall be deposited in a scheduled bank in a separate account within five days from the date of declaration of such dividend.

Further, Section 124 provides for opening of an unpaid dividend account, 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.

So, to summarize till here, A company declares dividend and deposit it to a dividend account for payment and then from that account if the dividend is not claimed within 30 days of declaration then that unclaimed and unpaid amount is transferred to another account called unpaid dividend account. 

Further, if any money transferred to the Unpaid Dividend account which remains unpaid or unclaimed for a period of seven years, then from here it shall be transferred to IEPF.

FAQs on IEPF 

1. Whether the underlying shares of unpaid or unclaimed dividends are required to be transferred to IEPF when the amount of unpaid or unclaimed dividend is being transferred?

Every Company is mandatorily required to transfer the underlying shares for which the dividend has remained unpaid or unclaimed for a consecutive period of seven years within a period of thirty days of such shares becoming due to be transferred to the Fund, as stated under sec 124(6) of Companies Act.

One important point to note here that the foremost condition for transfer of shares is that the dividend on such shares shall be unpaid or unclaimed for a seven consecutive years.

and accordingly, as per section 124(6) of the Act, the underlying shares of unpaid or unclaimed dividend are also required to be transferred to IEPF apart from the amount of unpaid or unclaimed dividend once the consecutive period of seven year lapses.

2. Whether the provisions of section 124 of the Act, are also applicable in case of interim dividend being unpaid or unclaimed? 

Here we will look at Section 124 which states that - Where a dividend is declared by a Company .... and then section 2(35) which defines dividend to include interim divided in it. Therefore, section 124 also applies on interim dividend.

3. Whether the word ‘consecutive’ mentioned under section 124(6) is relevant for both unpaid or unclaimed dividend and shares?

Again, a very debatable question, if you look at sec 124(5) & (6) carefully, you will find a minor difference as (5) do not use the word "consecutive" where (6) use it.

Analysis can be as follows:

The requirement for transferring unpaid or unclaimed dividend arises when the same remains unpaid or unclaimed for seven years. Here the period of seven years may or may not be consecutive. 

But, when we calculate the period of seven years for the purpose of transferring the shares underlying such unpaid or unclaimed dividend, it is mandatory that such unpaid or unclaimed amount of dividend is lying with the company for seven consecutive years or more.

In short, No consecutive for Dividend 

                 Consecutive for Shares

    

Example: Mr. A did not claim dividend for FY 09-10, but he claimed dividend for FY 10-11. In this case the dividend that remains unpaid for FY 09-10 shall be transferred to IEPF on expiry of seven years, i.e. FY 16-17. However, the underlying shares cannot be transferred in FY 16-17 since Mr. A has claimed dividend on such shares for the FY 10-11. The shares will only be transferred in case there is a failure of consecutive seven years in payment of dividend. 

In the present case, the underlying shares will only get transferred to IEPF in the FY 18-19 provided Mr. A has not encashed any dividend on such shares from FY 11-12 and onwards. Therefore, the word ‘consecutive’ mentioned under section 124(6) is only relevant for the transfer of underlying shares.

4. Within what time should the shares be transferred to the IEPF?

As per Rule 6 of the IEPF Rules, the shares shall be credited to DEMAT Account of the IEPF Authority within thirty days of such shares becoming due to be transferred to the IEPF. 

Example: Let us say that the due date for transferring shares on which dividend has remained unpaid and unclaimed from the financial year 2009-10 and onwards is 31st October 2017, therefore, all the transfer formalities should be completed within 30th November, 2017. 

Pursuant to the Amendment Rules, it is clarified that shares in respect of which dividend has been transferred to IEPF on or before 7th September, 2016, shall also be transferred by the company in the name of IEPF.

5. Can we transfer the unclaimed or unpaid dividend amount and the underlying shares for the same on the same day to the IEPF?

Rule 5(1) of the IEPF Rules provides for time period of 30 days for transferring the unpaid or unclaimed amount to the IEPF from the date of its becoming due to be credited.

Likewise, Rule 6(1) of the IEPF Rules provides that the shares shall be credited to the IEPF within 30 days of the shares becoming due to be transferred to the IEPF.

Therefore, transferring of both the unpaid or unclaimed amount and the shares on the same day is not required, but both shall be done within 30 days.

6. Whether the provisions relating to transfer of shares and dividend being unpaid or unclaimed applicable to all Companies or is there any exemption provided?

This Compliance to be done by every dividend-paying company.

Is that a newly added provision or Companies Act 1956 had these provisions?

Altough Companies Act, 1956 had similar provisions, the Companies Act 2013 has newly added certain additional provisions for this compliance.

When the unclaimed/ unpaid amount shall be transferred to the IEPF Fund?

Basically any amount lying idle in the unpaid dividend account f0r 7 years or more then it shall be transferred to IEPF along with interest accrued, if any. [Sec 124(5)]  

What are the Compliances related to the Unpaid/unclaimed Dividend?

Section 124(1) of the Act provides that where any dividend has not been paid or claimed within 30 days from the date of the declaration of such dividend, the company shall, within 7 days from the date of expiry of the said 30 days, transfer the total amount of unpaid/ unclaimed dividend to a special account known as Unpaid Dividend Account to be opened by the company in that behalf in any scheduled bank.

And further, every company in each year after holding AGM or date on which AGM should have within sixty days and thereafter till completion of 7 years period, identify the unclaimed amounts (both shares and dividend),  separately furnish and upload on its own website and also on website of Authority or any other website as may be specified by the Government, a statement or information in Form No. IEPF-2, separately for each year containing following information, namely:- 

the names and last known addresses of the persons entitled to receive the sum; 

the nature of amount; 

the amount to which each person is entitled;

the due date for transfer into the Investor Education and Protection Fund;

Timeline to follow for unpaid or unclaimed dividend and underlying shares.

Timeline to follow for filing of IEPF Forms.

What is the procedure to transfer demat shares to the IEPF demat account?

Under the Principal Rules, the Companies were required to sign delivery instruction slips (DIS) as one of the steps to transfer the demat shares, however, the Amended Rules have simplified the transfer process for shares held in demat form. As per the said rules, the Companies are now required to inform their depository by way of a corporate action where the shareholders have their account and thereafter the depository shall effect transfer in favor of the demat account of the IEPF.