Transfer of Shares of shareholders whose dividend remains unpaid for 7 years, to IEPF
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Provisions and Procedure for Transfer of shares to IEPF, as prescribed under sections 124 and 125 of the Companies Act, 2013 and the IEPF (Accounting, Audit, Transfer and Refund) Rules, 2016; requires all regular dividend paying companies to transfer the shares of all such shareholders whose dividend remains unpaid/unclaimed for a continuous period of 7 years, to the demat account of Investor Education and Protection Fund (IEPF) set up by the Government and all future dividends to be credited to that Fund.
It has been mentioned that the ‘transfer of shares’ by companies to the fund is to be deemed as ‘transmission of shares’. Under normal transmission procedure, the legal heirs are supposed to provide the physical share certificates in their possession to the concerned company, registered in the name of original shareholders. However, in this deemed transmission situation, no share certificates are being surrendered to the company. Rather, the original share certificates are to be cancelled suo-moto and duplicate share certificates are to be issued in lieu thereof, whereas the actual shareholder might still be having the original share certificates in his possession.
Further, these provisions/procedures require the Board of Directors (who are not the owners of shares) to authorise the Company Secretary or any other person to make an application, on behalf of the concerned shareholders (who are actually not authorizing anyone), to the company, for issue of duplicate share certificates.
It is quite ironical that the official responsible in the company to look after investors’ services would be writing to himself to carry out the activity which would entail unnecessary monetary loss to lot of small investors by usurping their shares - which they must have acquired by investing their hard earned money - simply because of the reason that they had been unable to encash the dividend paid by companies for 7 years.
The provision does exist for the investors to reclaim the shares from the Fund/Authority, but it is common knowledge that how convenient it is to reclaim something from the Government and the procedure prescribed for the matter is quite cumbersome! Also, when the company has provided the complete details of the owners of shares and the amount of unpaid/unclaimed dividends to the Authority, why is it obligatory on the Company to verify the refund claim before it is settled by the authority?
The above provisions of Companies Act, 2013 would cause tremendous hardship to all stakeholders, except the Government, with no apparent benefit accruing to public at large. Hence, it is desired that the provision be scrapped at the earliest by following the due process of law.
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