COMPANY UNDER IEPF RULES


Since the introduction of Investor Education and Protection Fund (IEPF) in the year 2001, I have a keen interest in the law related to investor protection, particularly under the Companies Law. Presently, one of the significant but neglected features of the IPEF Rules is the definition of the Company. The definition has been amended several times to keep track of silent changes of several laws without much notice of the stakeholder.

The original definition of the company under the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (IEPF Rules, 2016) with effect from 7th September 2016 was as under:

“Company” means company as defined in sub-section (20) of section 2 of the Act and includes ‘corresponding new bank’ as defined in sub-section (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) and clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980).

This definition was survived only for 175 days (less than 6 months) and substituted by a new definition by the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Amendment Rules, 2017 with effect from 28th February 2017:

“Company” means a company defined in sub-section (20) of section 2 of the Act and includes ‘corresponding new bank’ as defined in sub-section (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) and clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980) and ‘subsidiary bank’ as defined in clause (k) of section 2 of State Bank of India (Subsidiary Bank) Act, 1959 (38 of 1959).

The Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Amendment Rules, 2019 amended this definition and the new definition emerged with effect from 1st May 2019 as under:

“Company” means a company defined in sub-section (20) of section 2 of the Act and includes ‘corresponding new bank’ as defined in sub-section (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) and clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980) and ‘subsidiary bank’ as defined in clause (k) of section 2 of State Bank of India (Subsidiary Bank) Act, 1959 (38 of 1959) “State Bank of India constituted under section 3 of the State Bank of India Act, 1955 (23 of 1955), ‘subsidiary bank’ as defined in clause (k) of section 2 of the State Bank of India (Subsidiary Bank) Act, 1959 (38 of 1959) and includes any other entity which is required to transfer any fund to Investor Education and Protection Fund in accordance with any Act or statute governing it.”

However this definition was also amended within 112 days (Less than 4 months) by the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Second Amendment Rules, 2019 with effect from 20th August 2019:

“Company” means a company defined in sub-section (20) of section 2 of the Act and includes ‘corresponding new bank’ as defined in sub-section (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) and clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980) and “State Bank of India constituted under section 3 of the State Bank of India Act, 1955 (23 of 1955), ‘subsidiary bank’ as defined in clause (k) of section 2 of the State Bank of India (Subsidiary Bank) Act, 1959 (38 of 1959) and includes any other entity which is required to transfer any fund to Investor Education and Protection Fund in accordance with any Act or statute governing it and any transferee company in respect of the assets and liabilities of transferor company”

This makes the definition very logical but complex and may need a further amendment to keep track of the investor protection laws in India. We will discuss the present definition:

The Company under Section 2(20)

A company defined in subsection (20) of section 2 of the Companies Act, 2013 means a company incorporated under this Act (the Companies Act, 2013) or under any previous company law. This refers to all companies in India except companies incorporate outside India.

Corresponding New Bank

There are two types of corresponding new banks in India One set of corresponding new bank are defined in sub-section (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970). Another set of the corresponding new bank is defined in clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980).

Other old banks like Jammu and Kashmir Bank Limited and Karnataka Bank Limited and other banks like Axis bank Limited and Kotak Bank Limited are companies under the Act.

Corresponding New Bank under Bank Nationalization 1969

Sub-section (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 defines corresponding new bank for the Bank Nationalization 1969. Accordingly “corresponding new bank”, in relation to an existing bank, means the body corporate specified against such bank in column 2 of the First Schedule of that Act.

These are:

EXISTING BANK ON 19th day of July, 1969 CORRESPONDING NEW BANK
The Central Bank of India Limited Central Bank of India
The Bank of India Limited Bank of India
The Punjab National Bank Limited Punjab National Bank
The Bank of Baroda Limited Bank of Baroda.
The United Commercial Bank Limited UCO Bank
Canara Bank Limited Canara Bank
United Bank of India Limited United Bank of India
Dena Bank Limited Dena Bank
Syndicate Bank Limited Syndicate Bank
The Union Bank of India Limited Union Bank of India
Allahabad Bank Limited Allahabad Bank
The Indian Bank Limited Indian Bank
The Bank of Maharashtra Limited Bank of Maharashtra
The Indian Overseas Bank Limited Indian Overseas Bank

The requirement of inclusion of these corresponding new banks in the definition of the company arises from sub – section (3) and (4) of Section 10B of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Section 10B of that Act read as under:

10B(3)Any money transferred to the Unpaid Dividend Account of a corresponding new bank 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 corresponding new bank to the Investor Education and Protection Fund established under sub-section (1) of section 205C of the Companies Act, 1956 (1 of 1956).

10B(4) The money transferred under sub-section (3) to the Investor Education and Protection Fund shall be utilised for the purposes and in the manner specified in section 205C of the Companies Act, 1956 (1 of 1956).

Corresponding New Bank under Bank Nationalization 1980

Clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 defines corresponding new bank for the Bank Nationalization 1980. Accordingly “corresponding new bank”, in relation to an existing bank, means the body corporate specified against such bank in column 2 of the First Schedule.

These are:

EXISTING BANK ON 15th April 1980 CORRESPONDING NEW BANK
The Corporation Bank Limited Corporation Bank
The New Bank of India Limited New Bank of India
The Oriental Bank of Commerce Limited Oriental Bank of Commerce
The Punjab and Sind Bank Limited Punjab and Sind Bank
Vijaya Bank Limited Vijaya Bank

The requirement of inclusion of these corresponding new banks in the definition of the company arises from sub – section (3) and (4) of Section 10B of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.

State Bank of India

Section 3 of the State Bank of India Act, 1955 (23 of 1955) define the State Bank of India as A Bank to be called the State Bank of India shall be constituted to carry on the business of banking and other business in accordance with the provisions of this Act and for the purpose of taking over the undertaking of the Imperial Bank.

According to Section 2(d) of that Act, “Imperial Bank” means the Imperial Bank of India constituted under the Imperial Bank of India Act, 1920 (47 of 1920).

The Imperial Bank of India was the oldest and the largest commercial bank of the Indian subcontinent. Initially, as per its royal charter, it acted as the central bank for British India prior to the formation of the Reserve Bank of India in 1935. It was an amalgam of three presidency banks namely the Bank of Bengal, established on 2 June 1806, the Bank of Bombay (incorporated on 15 April 1840), and the Bank of Madras (incorporated on 1 July 1843).

The requirement of inclusion of the State Bank of India in the definition of the company arises from sub – section (3) of Section 38. Section 38(3) of that Act read as under:

Any money transferred to the unpaid dividend account of the State Bank, 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 State Bank to the Investor Education and Protection Fund established under sub-section (1) of section 205C of the Companies Act, 1956 (1 of 1956) for being utilised for the purpose and in the manner specified in that section.

Please Note Section 38 of the SBI Act do not have any corresponding provision to the sub – section (4) because the corresponding provision is already incorporated in sub – section (3) itself.

Subsidiary Bank

Subsidiary Bank is defined in clause (k) of section 2 of the State Bank of India (Subsidiary Bank) Act, 1959 (38 of 1959). Accordingly, “subsidiary bank” means any new bank and includes the Hyderabad Bank. According to Section 2(f) of that Act, “new bank” means any of the banks constituted under section 3. Accordingly to Section 3 of that Act, there shall be constituted the following new banks, namely:―

  • the State Bank of Bikaner;
  • the State Bank of Mysore;
  • the State Bank of Patiala; and
  • the State Bank of Travancore;

The requirement of inclusion of the Subsidiary Bank in the definition of the company arises from sub – section (3) and (4) of Section 40A of that Act. Section 40A(3) of that Act read as under:

40A(3) Any money transferred to the unpaid dividend account of the subsidiary bank 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 subsidiary bank to the Investor Education and Protection Fund established under sub-section (1) of section 205C of the Companies Act, 1956 (1 of 1956).

40A(4) The money transferred under sub-section (3) to the Investor Education and Protection Fund shall be utilised for the purposes and in the manner specified in section 205C of the Companies Act, 1956 (1 of 1956)].

Any Other Entity

The definition of the Company under IEPF Rules 2016 with effect from 1st May 2019 includes any other entity which is required to transfer any fund to Investor Education and Protection Fund in accordance with any Act or statute governing it. This was a well discussed in light of possible inclusion of the provision in various other laws to transfer unclaimed amounts to the IEPF.

Any Transferee Company

This inclusion was for reason that in case of merger and amalgamation of companies, it becomes problematic for transferee companies to comply with the requirement of law in respect of their transferor companies. Now, transferee companies may comply with the law in respect of transferor companies.

Subscribe on WhatsApp; Send a WhatsApp message “Subscribe AishMGhrana” to +91 96503 38103. For Email Subscription use this form –

Enter your email address to follow this blog and receive notifications of new posts by email.

Advertisements

No professional query in comments (but in mail). Only academic discussion here. Comments moderated. Sometime, I reply to your mail ID.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.