EFFECT OF TRANSFER OF SHARES TO IEPF


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.  We discussed procedure amended with effect from 20th August 2019 in the last post here. In this post, we will discuss the post-transfer effects and procedures.

FROZEN VOTING RIGHTS

The voting rights on shares transferred to the Fund shall remain frozen until the rightful owner claims the shares:

Provided that for the purpose of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the shares which have been transferred to the Authority shall not be excluded while calculating the total voting rights. [Rule 6(6)]

The voting shall be restored when a rightful owner may get its share re-transferred to her name. Until such re-claim of shares, there will be no voting right and these shares shall not be counted for calculation of voting rights and total voting rights.

To clear doubt, these shares shall be counted for the purposed of issued, subscribed and paid-up capital.  This requires a careful calculation for the purpose of general meeting, postal and electronic voting.

However, Companies should send an annual report and all other communication rightfully available to a member of the company to IEPFA. IEPFA has its name in the register of members of the company and in all extended logics it is also a legal custodian of the property of the rightful owner of these shares and now frozen voting right. It is true IEPFA may not act (or willfully abstain from an act) on many of the communications made to it.

BONUS AND RIGHT ISSUE TO IEPFA

All benefits accruing on such shares like bonus shares, split, consolidation, fraction shares and the like except right issue shall also be credited to such DEMAT account by the company which shall send a statement to the Authority in Form No.  IEPF – 4 within thirty days of the corporate action containing details of such transfer (read credit). [Rule 6(8)]

This rule protects all right of the rightful owner which can be protected without spending additional money and application of mind. The rightful owner entitles to all bonus shares, split of her shares, consolidation of her shares, and all fraction shares generated in any corporate action. The right issue requires the additional application of mind, efforts and money but cannot ensure a considered decision which the rightful owner might take in respect of her rights. There is no right offer to IEPFA and therefore no renouncement.

The period of thirty days shall be counted from the date of corporate action for such credit not from the actual date of such credit by the depository in IEPFA DEMAT Account.

DEALING WITH SHARES IN IEPFA DEMAT ACCOUNT

The shares held in such DEMAT account shall not be transferred or dealt with in any manner whatsoever except for the purposes of transferring the shares back to the claimant as and when he approaches the Authority or in accordance with sub-rule (10) and (11). [Rule 6(9)]

The Shares held in the DEMAT account of IEPFA shall be dealt with in the following manner only for:

  1. Transferring the shares back to the claimant;
  2. Surrendering the shares in case of delisting and realization of proceeds; and
  3. Surrendering the shares in case of winding up and realization of proceeds.

The transfer of share back to the claimant will be discussed in a future post.

SURRENDERING THE SHARES IN CASE OF DELISTING

If the company is getting delisted, the Authority shall surrender shares on behalf of the shareholders in accordance with the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 and the proceeds realized shall be credited to the Fund and a separate ledger account shall be maintained for such proceed. [Rule 6(10)]

The procedure will be the same as applicable to any other shareholder of the company. The IEPFA shall maintain the record of such proceeds in a separate ledger of each such shareholder and event of such surrender.

SURRENDERING THE SHARES IN CASE OF WINDING UP

In case the company whose shares or securities are held by the Authority is being wound up, the Authority may surrender the securities to receive the amount entitled on behalf of the security holder and credit the amount to the Fund and a separate ledger account shall be maintained for such proceeds. [Rule 6(11)]

The procedure will be the same as applicable to any other shareholder of the company. The IEPFA shall maintain the record of such proceeds in a separate ledger of each such shareholder and event of such surrender.

DIVIDEND TO IEPFA

Any further dividend received on such shares shall be credited to the Fund and a separate ledger account shall be maintained for such proceeds. [Rule 6(12)]

Wherever a dividend including any interim dividend is declared by the company, the dividend calculated on shares transferred to IEPFA shall be credited to the IEPFA.

CREDIT OF AMOUNT

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. [Rule 6(13)]

The company shall furnish Form IEPF -1 in the same manner as discussed in an earlier post here.

Aishwarya Mohan Gahrana

 

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2 responses to “EFFECT OF TRANSFER OF SHARES TO IEPF

  1. Dipakkumar J Shah

    Good article. But what will be effect of when even Original Dividend warrants had been sent for revaildation and not sent back for many years? One company is not taking any Interest for Duplicate Shares> One company did not sent all the shareholders upon a scheme of deerger of company and also simultaneously compulsory bought back the shares> Every shareholder who had not been sent the shares has to apply for Duplicate shares?

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