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Investor Education and Protection Fund

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     on  01 June 2012    

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Investor Education and Protection Fund (Uploading of information regarding unpaid and unclaimed amounts lying with companies) Rules, 2012

 

Introduction:

 

Vide notification no.G.S.R. 352(E) Central Government published the Investor Education and Protection Fund (Uploading of information regarding unpaid and unclaimed amounts lying with companies) Rules, 2012 .These new rules have come into force w.e.f 20th May 2012. Before we delve into the requirements to be complied with by these Rules, it would be helpful to briefly refer to the provisions of Section 205-A and 205 C of the Companies Act,1956.

 

About Section 205A

 

Prior to introduction of Section 205C of the Companies Act, 1956, Section 205A was dealing with unpaid or unclaimed dividends of shareholders. Following are the provisions.

 

1. Section 205-A mandates that any dividend which remained unpaid/unclaimed within 30 days from the date of declaration has to be transferred to a Special a/c titled “Unpaid dividend for the year_____“ . This transfer has to be made within 7 days from the expiry of the said 30 days.

 

2. Any dividend which remained unclaimed/unpaid for a period of 7 years from the date of transfer to special a/c has to be transferred to Investor Education and protection fund created under Section 205-C.Prior to introduction of 205C, such unclaimed dividend was transferred to General Revenue account of Central government. Shareholders are permitted to claim uncashed dividend amounts from the said General revenue account of Central Government by submitting prescribed Form   to Registrar of Companies.

 

About 205-C and subsequent changes

 

Section 205 C was introduced with effect from 31.10.1998 by the Companies (Amendment) Act, 1999. As per this new section, following amounts  which remained unpaid or unclaimed for a period of seven years from the due dates have to be transferred to Investor Education and Protection Fund (IEPF)established under subsection(1) of Section 205-C of the Companies Act.

 

205 C(2). There shall be credited to the Fund the following amounts namely: –

 

a. amounts in the unpaid dividend accounts of companies;

 

b. the application moneys received by companies for allotment of any securities and due for refund;

 

c. matured deposits with companies;

 

d. matured debentures with companies;

 

e. the interest accrued on the amounts referred to in clauses (a) to (d ;

 

f. grants and donations given to the Fund by the Central Government, State Governments, companies or any other institutions for the purposes of the Fund; and

 

g. the interest or other income received out of the investments made from the Fund;

 

Further the section stipulates that no claims shall lie against the Fund or the company in respect of individual amounts which were unclaimed and unpaid for a period of seven years from the dates that they first became due for payment and no payment shall be made in respect of any such claims.

 

What is the effect of Section 205C?

 

It would be clear from the above, as far as companies are concerned in addition to unpaid dividend, application money due for refund on allotment, matured fixed deposits  and debentures and interest on these amounts are to be credited to Investor Education and Protection Fund(IEPF)

 

The IEPF shall be utilised for the promotion of investors. Central government may frame the Rules as per Section 205C (3) for administration of the Fund.

 

What difference Section 205C makes to shareholders/Investors?

 

Section 205A  tries to protect the shareholders interest  by preventing company managements from using shareholders money after declaration of dividend by providing transfer to special account and thereafter on expiry of 7 years by transfer to revenue account of Central Government against which  claims used to lie(prior to introduction of Section 205C)

 

But after introduction of Section 205 C, amounts of unclaimed or unpaid dividend along with matured debentures, matured fixed deposits, application money due for refund, have to be transferred to IEPF against which no claim lies. This in my view is not investor friendly although one can say that any claim of unpaid/unclaimed amounts after 3 years is barred by law of limitation.

 

A Look at New Rules

 

Now let us have a close look at the new IEPF (Uploading of information regarding unpaid and unclaimed amount lying with companies) Rules 2012.

 

1. Every Company has to identify the unclaimed amounts  referred in Section 205C(2) and details of those unclaimed amounts must be uploaded on the Companies Website and also on the Website of MCA or any other Web site as may be specified by the Govt subsequently.

 

2. The said information shall contain the names, address of the persons who are entitled to claim, nature of amount, and unpaid amount, due date for transfer to IEPF and any other information.

 

3. The notification has prescribed E Form – 5 INV for uploading the details mentioned in Para – 2. It implies that folio wise/Client ID (DPID) wise details in respect dividend, application money and similarly for matured Fixed Deposits/ Debentures must be uploaded along with Form- 5 INV.

 

4. Readers may visit IEPF portal which indicated the following guidelines for uploading:

 

a. Install the Pre-requisite Software's to proceed. To know and install the same click on 'Prerequisite Software' link,

 

b. Download Form 5 INV.

 

c. Fill the form according to the instructions given in its instruction kit

 

d. Upload the filled form on the IEPF portal

 

e. After the Form 5- INV is filled and uploaded on the MCA21 portal, you are required to provide the investor wise details of unclaimed and unpaid amount in an excel file

 

f. Download the excel template from the IEPF Portal

 

g. Fill in the excel template with investor-wise detail

 

h. Upload the excel file with investor-wise details of unclaimed and unpaid amounts

 

i. After all the details are uploaded confirm upload of unclaimed and unpaid amount details

 

5. The Rule no.3 stipulates that every year uploading information as indicated above must be done with within 90 days after the holding of AGM. (If AGM is not held due to any reasons, the date on which it should have been held may be considered).

 

6. It is also indicated at the end of Rule 3 further that last date for filing information about unclaimed amounts for the financial year 31st March 2011 is 31st July 2012. By implication for subsequent years it will be 90 days from the date of AGM. In other words, the investors will be in position to know their unclaimed amounts/matured deposits/debentures etc by visiting the company’s web site or MCA site. There will be some practical difficulties in deciding the financial year

 

7. The new E form which is to be uploaded in MCA portal has to be certified by a Chartered Accountant, Company Secretaries or a Cost Accountant practicing in India.

 

8. If default is committed the Company and every officer shall be liable u/s 629A of the Companies Act, 1956.

 

Conclusion: The new rules are welcome as the shareholders/deposit or debenture holders will now be able to know their unclaimed amounts (including interest on them) every year from the website of the respective companies in which they have invested and also from the MCA IEPF web site. This will be in addition to the communication which is sent by companies in respect of unclaimed dividends before its transfer to IEPF. Although Central Government is using the unclaimed amounts for a investor benefits, still the old provisions of Section 205-A which allows shareholder/legal heirs to claim unpaid/unclaimed dividend without any limitation of time are investor friendly.

 

G S Rao,Chief Manager(Legal),OCL India Limited

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