Saving Private Assets


[A new Web portal LawStreetIndia launched on Pongal this year. This piece was originally published on LawStreetIndia here on 15th January 2015. This blog wish all success to the portal]

Investor Education and Protection Fund is a permanent parking lot of all unclaimed shares and dividend under the Companies Act. Unending hunger of fund by government results its claim on everything unclaimed with help of hurriedly drafted laws. Yes, for all legal purpose, government is not going to own such money and keep it in trust but fund so transferred help to arrange mileage for government as administrator of such fund.

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 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. This provision restricts a company from using money which rightly belongs to the shareholder concern. Shareholders money invested in the bank account bearing a bank interest, depending upon type of account and other terms and conditions. There is scope for improvement of law here.

Any person claiming to be entitled to any money transferred to the Unpaid Dividend Account of the company may apply to the company for payment of the money claimed. There is no need to say, such person shall be shareholder of the company or legal heir of shareholder. The company is sole judge to ascertain entitlement of any claimant. Whether such person may claim interest, if any, or not?

Here comes Investor Education and Protection Fund. 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 Investor Education and Protection Fund. This may be good point that such unclaimed money shall be transferred to the fund for good reason of investor protection. But story not end here.

All shares in respect of which unpaid or unclaimed dividend has been transferred shall also be transferred by the company in the name of Investor Education and Protection Fund.

However, proviso comes with strange gift to shareholders. Any claimant of shares transferred above shall be entitled to claim the transfer of shares from Investor Education and Protection Fund. Read again and find, claimant may claim shares not the dividend so transferred.

Now, there is small correction by the Companies (Amendment) Bill 2014 which was passed by Loksabha on 17th December 2014.  Now above provision related to transfer of shares to Investor Education and Protection Fund is proposed to be read as:

All shares in respect of which dividend has not been paid or claimed for seven consecutive years or more shall be be transferred by the company in the name of Investor Education and Protection Fund.

There is no change in proviso to this sub – section. But an explanation added. Explanations to Section in India laws do wonder always. “For the removals of doubts it is hereby clarified that in case any dividend is paid or claimed for any year during the said period of seven consecutive years, the share shall not be transferred to Investor Education and Protection Fund.”

What is worth of such amendment? Earlier, “shares in respect of which unpaid or unclaimed dividend has been transferred shall also be transferred” and now “shares in respect of which dividend has not been paid or claimed for seven consecutive years or more shall be be transferred” to the Investor Education and Protection fund.

In both case underlying condition is: transfer of dividend money remain unpaid or unclaimed for a period of seven years is to be transferred to the Investor Protection and Education Fund. In both cases, shareholders may claim his shares from the Investor Protection and Education Fund not dividend and interest thereon.

Legal position for shareholder is clear, seek electronic transfer to their account and keep it updated. Otherwise, you have to claim your dividend within 7 years otherwise you will loss it for once and all. Worst is, shares in respect of unpaid or unclaimed dividend may also go in hand of the Investor Protection and Education Fund.

From eye of investor, non – receipt of dividend may cost your assets or long term investment in shares until you successfully claim your property back.

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One response to “Saving Private Assets

  1. Pingback: Index of Companies Law Posts | AishMGhrana

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