Curious Case of IEPF – 7


Ministry of Corporate Affairs on 22nd May 2018 notified the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Third Amendment Rules, 2017 to amend Rule 6 of principal Rules and to insert Form IEPF – 7. The nomenclature of these amendments charily indicates that thought process to introduced Form IEPF -7 was started during the year 2017 but somehow delayed. Let us discuss these amendments.

AmountS (or Dividend) Post transfer of shares

Rule 6 dealing with the manner of transfer of shares under sub-section (6) of section 124 to the Fund, in its present form were introduced by the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Amendment Rules, 2017 with effect from 28th Feb 2016.

Sub-rule 13 of Rule 6 was inserted to these rules by the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Second Amendment Rules, 2017 with effect from 13th October 2017.

Rule 13 as discussed earlier here require that any amount required to be credited by the companies to the Fund as provided under sub-rules (10), (11) and sub-rule (12) shall be remitted to the specified account of the IEPF Authority maintained in the Punjab National Bank. Subrules (10), (11) and (12) refers to shares to be surrendered by IEPFA under delisting of shares, surrendered by IEPFA during winding up and any dividend received by IEPFA on shares earlier transferred to it under Section 124(6). These sub-rules get authority for such transfer of the amount from Rule (3)(2)(c).

After present amendment Sub-rule 13 of Rule 6 read as under:

“Any amount required to be credited by the companies to the Fund as provided under sub-rules (10), (11) and sub-rule (12) shall be remitted into the specified account of the IEPF Authority maintained in the Punjab National Bank and the details thereof shall be furnished to the Authority in Form No. IEPF 7 within thirty days from the date of remittance or within thirty days from the date of enforcement of these Rules, as the case may be”

Reason for amendment

[Readers may need to refer earlier discussion on IEPF and chapter VIII of the Companies Act, 2013. Please refer earlier posts here.]

Careful readings suggest that Section 125(2) deals with various amounts to be to IEPFA and Section 124(6) deals with the transfer of shares to IEPF. In case of these transferable/transferred shares, an amount may be –

  • due but unclaimed or unpaid before such transfer of shares; or
  • become due after such transfer of such

For further discussion, we take the case of dividend as an example and case for all other amounts due to these shares may be understood accordingly.

Under the Present scheme of these Rules amount already unclaimed or unpaid dividend shall be transferred to IEPF with the filing of Form IEPF – 1 under Rule 5(4) read with Section 125(2)(c). After this amendment amount of dividend declared post such transfer of shares to IEPF shall be transferred with the filing of Form IEPF – 7.

Drafting dilemma

Look the following table:
{Presume: 1. These shares is not/will not be reclaimed by shareholder concerned; and 2. AGM for 2018 will held after due date of transfer of these shares to IEPF}

Declaration Year Dividend Amount Amount Transfer
year
Share Transfer year Form
2010-11 Re. 1 2018 2018 IEPF – 1
2011-12 Re. 1 2019 Done IEPF – 1
2012-13 Re. 1 2020 Done IEPF – 1
2013-14 Re. 1 2021 Done IEPF – 1
2014-15 Re. 1 2022 Done IEPF – 1
2015-16 Re. 1 2023 Done IEPF – 1
2016-17 Re. 1 2024 Done IEPF – 1
2017-18 Re. 1 2018 Done IEPF – 7
2018-19 Re. 1 2019 Done IEPF – 7
2019-20 Re. 1 2020 Done IEPF – 7

While shares shall be transferred (Form IEPF – 4) along with its first unclaimed and unpaid dividend required to be transferred to the IEPF (form IEPF – 1) and its first dividend declared after such transfer (IEPF -7). Amount of dividend for 6 years between first years unclaimed dividend to the year of transfer of such shares shall remain in same unpaid dividend account (a current account) in hand of the company giving no interest income to company or IEPFA.

Proposal for ease

  1. (Through Rules) There may be a combined form for IEPF – 1 and IEPF – 7.
  2. (Through Act) There may be an option/compulsion given to the company to transfer amount of remaining 6 years. There is no practical logic to keep this amount in unpaid dividend account in the hand of the company. This amount cannot be claimed by or paid to shareholder unless underlying shares claimed back by the shareholder. Further, unlike the company, IEPF may get bank interest on this amount.

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