Sub – Section (6) of Section 124 mandates transfer of all shares in respect of which dividend has not been paid or claimed for seven consecutive years or more in the name of Investor Education and Protection Fund along with a statement containing such details as prescribed. Rule 5 of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 prescribe the manner of such credit. The procedure is now amended with effect from 20th August 2019.
BECOME DUE TO TRANSFER
The shares shall be credited to DEMAT Account of the Authority to be opened by the Authority for the said purpose, within a period of thirty days of such shares becoming due to be transferred to the Fund:
Provided that, in case the beneficial owner has encashed any dividend warrant or any dividend amount has been credited to the bank account of the owner of such shares during the last seven years, such shares shall not be required to be transferred to the Fund even though some dividend warrants may not have been encashed:
Provided further that in cases where the period of seven years provided under sub-section (5) of section 124 has been completed or being completed during the period from 7th September 2016 to 31st October 2017, the due date of transfer of such shares shall be deemed to be 31st October 2017.
Provided further that transfer of shares by the companies to the Fund shall be deemed to be the transmission of shares and the procedure to be followed for the transmission of shares shall be followed by the companies while transferring the shares to the fund.
Explanation.- For removal of all doubts, it is hereby clarified that all shares in respect of which dividend has been transferred to Investor Education and Protection Fund on or before the 7th September 2016, shall also be transferred by the company in the name of Investor Education and Protection Fund. [Sub- Rule (1) of Rule 6]
All shares in respect of which dividend has not been paid or claimed for seven consecutive years or more, shall be transferred to IEPF within 30 days from the due date. The due date for the purpose shall be calculated as under:
Date of Declaration + 30 days [Section 124(1)] + 7 days [Section 124(1)] + 7 years [Section 124(5)] Please note, there is no use of Section 123(4) in this calculation.
Assuming all things done on the last date of compliance, the shares in respect of which the dividend was declared on AGM held on 30th September 2012 shall become due to transfer on 6th November 2019. The company need to effect a transfer within 30 days from the due date. The date for effecting transfer shall be 6th day of December 2019.
Where any dividend warrant was enchased to by the beneficial owner or any dividend amount has been credited to the bank account of the owner of such share during last seven-year, these shares shall not be transferred to IEPF. The continuity of unpaid and unclaimed dividend amount is an essence for the transfer. If some dividend warrant was encased but some other not, the continuity is broken and shares shall not be transferred.
LEGAL STATUS OF TRANSMISSION
The transfer, in this case, shall be treated as transmission under other provision of this Act and other laws. This clarification is given in view of unintended use of term transfer in Section 124. The transfer requires two legally capable parties in existence, transmission not.
SHARES PERTAINS TO EARLIER PERIOD
Now with effect from 20th August 2019, this is mandated that all shares in respect of which dividend has been transferred to Investor Education and Protection Fund on or before the 7th September 2016, shall also be transferred by the company in the name of Investor Education and Protection Fund.
The purpose is to transfer shares in respect of which dividend has been transferred to IEPF is the underlying presumption that their true owners are now not traceable and these shares may be misused by the management. The same logic is applied behind inserting this explanation.
I personally disagree because it will enforce a prospective law retrospectively. It is also quite possible that all these shares might have already transferred to IEPF as a dividend in respect of these shares might not be claimed in subsequent years also and if claimed no need to transfer. Where these shares already transferred, a declaration that these shares already transferred should be sufficient.
Though there is no explanation is given for due date, there should be sufficient time for companies to comply with the requirement of public notice etc and therefore the due date should not be earlier than 26th January 2020 for the shares falling under this explanation.
PROCEDURE FOR TRANSFER TO IEPF
For the purposes of effecting the transfer of such shares, the Board shall authorise the Company Secretary or any other person to sign the necessary documents. [Sub – rule (2) of Rule 6]
The company shall follow the following procedure while transferring the shares, namely:-
(a) The company shall inform, at the latest available address, the shareholder concerned regarding transfer of shares three months before the due date of transfer of shares and also simultaneously publish a notice in the leading newspaper in English and regional language having wide circulation informing the concerned that the names of such shareholders and their folio number or DP ID – Client ID are available on their website duly mentioning the website address.
(b) In case, where there is a specific order of Court or Tribunal or statutory Authority restraining any transfer of such shares and payment of dividend or where such shares are pledged or hypothecated under the provisions of the Depositories Act, 1996 or shares already been transferred under sub-rule (1) above, the company shall not transfer such shares to the Fund:
Provided that the company shall furnish details of such shares and unpaid dividend to the Authority in Form No. IEPF 3 within thirty days from the end of financial year.
(c) For the purposes of effecting the transfer, where the shares are dealt with in a depository-
(i) the Company shall inform the depository by way of corporate action, where the shareholders have their accounts for transfer in favour of the Authority.
(ii) on receipt of such intimation, the depository shall effect the transfer of shares in favour of DEMAT account of the Authority.
(d) For the purposes of effecting the transfer shares held in physical form-
(i) the Company Secretary or the person authorised by the Board shall make an application, on behalf of the concerned shareholder, to the company, for issue of a new share certificate;
(ii) on receipt of the application under clause (a), a new share certificate for each such shareholder shall be issued and it shall be stated on the face of the certificate that
“Issued in lieu of share certificate No….. for the purpose of transfer to IEPF” and the same be recorded in the register maintained for the purpose;
(iii) particulars of every share certificate shall be in Form No. SH-1 as specified in the Companies (Share Capital and Debentures) Rules, 2014;
(iv) after issue of a new share certificate, the company shall inform the depository by way of corporate action to convert the share certificates into DEMAT form and transfer in favour of the Authority.” [Sub – rule (3) of Rule 6]
The procedure explained in the law is quite simple.
The information or public notice in newspapers under Rule 6(3)(a) should be made 3 months before the due date explained hereinabove. In the above example, notice date shall be on or before 6th August 2019. The public notice should be treated as an essential condition. Courts usually treats requirement of public notice sacrosanct in various judgments (though unrelated to IEPF).
For Rule 6(3)(d) requirement of depositories in case of dematerialization shall also apply.
STATEMENT OF TRANSFER
While effecting such transfer, the company shall send a statement to the Authority in Form No. IEPF-4 within thirty days of the corporate action taken under clause (c) of sub-rule (3) of rule 6 containing details of such transfer and the company shall also attach a copy of the public notice published under clause (a) of sub-rule (3) of rule 6 in Form No IEPF-4. [Rule 6(5)]
The amended sub-rule (5), require to file form IEPF – 4 within 30 days within 30 days from the corporate Action of such transfer. Assuming that such transfer is made on the last date of the transfer mentioned in Rule 6(1), the latest possible due date of filing the Form IEPF – 4 in above example shall be 5th January 2020.
The company shall make such transfers through corporate action and shall preserve copies for its records. [Rule 6(4)]
The company shall maintain all such statements filed under sub-rule (5) in the same format along with all supporting documents and the Authority shall have the powers to inspect such records. [Rule 6(7)]
This record shall be permanent record unless relaxed in future.
Aishwarya Mohan Gahrana
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