Finance Business

IEPFA Issues Consultation Paper on Refund Process at IEPF Authority

The IEPF Authority was established as per Section 125 (5) of the Companies Act 2013 by the  Government of India for administering the Investor Education and Protection Fund (the fund).  The responsibility of such administration is entrusted with the authority through section 125 (3) of the Companies Act 2013.

The Central Govt had notified the IEPF (Accounting, Audit, Transfer and Refund) Rules, 2016, on 5^th September 2016, for facilitating the refund of claims regarding shares, unclaimed dividends, debentures etc.  In order to effectuate the transfer of shares to the Authority, two DEMAT Accounts, one for each of the depositories, are opened. NSDL and CDSL are engaged as depositories for maintaining the DEMAT accounts of the Authority.

In lieu of the same, the authority issued Consultation Paper on the refund process at IEPF Authority on 09.01.23 with the objective of simplifying and expediting the process of claim refund filed with IEPF Authority under the Companies Act 2013^[1]. The present article shall discuss the aspects covered in the consultation paper to provide clarity on the same.

Utilization of Investor Education and Protection Fund

Section 125(3) of the Authority has been entrusted with the responsibility of adminitering  the fund as per section 125 (3) of the Companies Act 2013, which mandates utilization of funds for:

1. The refund  of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest there on;
2. Promoting the investors’  awareness, education and protection;
3. Distributing any disgorged amount among eligible and identifiable applicants for debentures or shares,  debenture-holders, shareholders or depositors who have suffered losses due to wrong actions by any person, in accordance with the orders made by the Court which had ordered disgorgement; 
4. Reimbursement of legal expenses incurred in pursuing class action suits u/s 37 and 245 by members, debenture-holders or depositors  that have been sanctioned by the Tribunal; and
5. Any other purpose incidental thereto,  as per such rules as may be prescribed.

Refund process at IEPF Authority

The refund process at IEPF Authority is enumerated below –

Filling an Application

 For initiating the refund process at the IEPF authority, the claimant must file an application with authority in the prescribed manner. Such refund shall be settled after verification of the claims by the companies.

Transfer of application to the Nodal Officer

Once the application is filed by the claimant, it is transferred to the company’s Nodal Officer in MCA21.

Furnishing of E-Verification Report

Upon the receipt of the application to the nodal officer, a verification report is furnished by such officer to the Authority.

Processing of Claim for Refund

Subsequent to the furnishing of the verification report, the claims are processed in the IEPF authority for refund.

Communication regarding the Approval/Discrepancy/Rejection

Any discrepancy or objection and even the approval is communicated to the claimant via system-generated emails

Refund of Shares

The shares are refunded through the depository system after the objection and discrepancies are sorted. 

Refund of Amount

Finally, the amount is refunded through PFMS System, which completes the refund process.

Shares in the Name of	Form Filed By	Type of Claim	Remarks
A	A	Demat	Same Source & Destination demat account
A	A	Demat	Different Source & Destination demat account
A	A	Physical	Physical to Demat account
A	B	Physical	A’s death, Physical to Demat’s account
A & B	A	Physical	B’s Death RTA to delete the name of B
A&B	C	Physical	A & B’s death, transmission executed by RTA
A	B	Physical	Sale of shares by A to B, transfer deed executed by RTA

Categorization of Types of Claims Filed by the Authority

The categorization of Claims filed by the authority is demonstrated below – 

Documents required for claims filed with Authority as per SOP

The important documents with regard to the same are enlisted below –

• In case of a minor change in the name, the claimant must furnish the same name affidavit, whereas if there is a major change in the name, there is a need for publication in the newspaper.
• If there exists any difference in the address of the claimant, he must furnish a duly Notarized Affidavit and proof of new address.
• In the event of loss of Original Security, the relevant documents are a Copy of FIR, Indemnity, Surety Bond, Newspaper Advertisement (depending upon the valuation of securities)
•  In the case of an Unclaimed Suspense Account, the Transaction statement and CML of the Company’s Unclaimed Suspense Account must be furnished.
• In case of any difference in the name on the death certificate, the same name affidavit by Legal Heir is required
•  If there is any Claim with No excel data in MCA 21  based on the challan & year-wise details submitted by the company duly verified by the Nodal Officer,  providing the evidence that the amount and share actually transferred to IEPF.

Major reasons for discrepancies in a claim filed with the Authority:

Some of the major reasons for discrepancies in the claim filed with the Authority are

• Non-mentioning or incorrect mentioning of Folio No. in case of Physical securities and demat account no. in case of Demat account
• Wrong or Incomplete Aadhaar/ Passport detail
• Wrong or Incomplete Bank Account Detail
• Wrong or Incomplete Demat Account Detail
• Loss or Misplacement of Physical Securities Certificate and Documents for Loss  isn’t provided or Transmission documents not provided as per Schedule II
• Non Providing client Master Lists.
• Mismatched name and address of the claimant with KYC and company records
• Indemnity Bond executed on plain paper

Major reasons for rejection in a claim filed with the Authority

The claim can be rejected for the following reasons-

• Rejection of claim  by Company in its verification report
• Duplicate Claims filed by the Claimant
• Non-filing of the Verification report or revised verification report under rule 7(3) or 7(7), respectively 
• Claim filed in the name of the deceased shareholder.
• Receipt of request from the companies in case of a merger, demerger, amalgamation etc

Steps were taken by the IEPF Authority to ease the process of claim refund:

For the purpose of making the refund process more investor friendly, the authority invites suggestions from the industry, investors and companies and makes relaxations and amendments regularly. Reengineering of the process was conducted in the claim settlement process by the amendment of the rules under the  IEPF Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, in August 2019 and the below-mentioned salient changes were made in the same-

•  Implementation of a new simplified web-based e-form IEPF-5  which has features of PAN-based verification
• Online processing of e-form IEPF-5 by the co.  and submission of verification reports to the IEPFA
• Standard document list and SOP for processing of claims, including those  which involve transmission and loss of share certificates prescribed through Schedules

After this, there was further relaxation of the rules through IEPFA  (Accounting, Audit, Transfer and Refund) Second Amendment Rules 2021. Changes were as below:

For Claimants

• Waving off the requirement of Advance Receipt
• Relaxation of the requirement of Succession Certificate/ Probate of Will/ up to Rs 5 00,000 (five lacs) both for Physical & DEMAT shares.
• Replacement of the Notarization of documents with self-attestation and
• Relative Ease in the requirements of Affidavits and Surety

For Companies:

• Ease  in the Requirement of attaching documents  regarding Unclaimed Suspense Account
• Flexibility to the companies for accepting transmission documents viz. Succession Certificate, Will etc., in accordance with their internal approved procedures.
• Waive off the requirement of Newspaper Advertisement for loss of physical Share Certificate is waived off up to an amount of Rs.5,00,000.

Current Regulatory provisions for IEPF Claim Refund Process:

The current rules are provided under IEPFA (Audit, Account, Transfer and Refund) Rules. Some of the observations on the current refund  process are as below:

According to rule 7 of  IEPFA  ((Accounting, Audit, Transfer and Refund) Rules, the claim filed to the IEPFA  must be first verified by the Companies.  It is mandatory for the companies to send an e-verification report together with documents submitted by the claimant.

There is often a considerable delay in the submission of the e-verification report by companies or companies, or the submission of the report is made without requisite documents under the rules or the rejection of the claim by the companies in its verification report without providing any intimation to the claimant.

Proposal for categorising the claims depending upon their nature:  (Transfer,  Loss cases, Death Cases, Transmission,  Name Change etc.)  along with the threshold of their market value. Certain types of claims below a threshold for the same shareholder/investor, wherein there are minor changes like address change or bank account no. Change,  to be made STP (Straight Through Process)  on the basis of the approval report of the company.

Further relaxation of the  Documentary requirement with the IEPFA  continuing to process the claim above the threshold and doing share and amount transfer to the claimant. This can lead to the resolution of the issue of the cases being rejected at the end of the company, thereby providing real-time status and monitoring of the case to all stakeholders.

Shares transferred through Reverse Corporate Action:

Subsequent to the approval, the share and amount shall be transferred by the IEPFA  to the respective co, through reverse corporate action, which will subsequently transfer the same to respective claimants. The company shall have the responsibility to transfer the shares and amount to the claimant through corporate action upon its receipt from IEPFA.  The timelines shall be enforced by the Authorities will through penalties and interest.

Limitation Threshold

A consideration for bringing a limitation threshold (in years, say 10 years from the date of transfer of shares to Authority)  subsequent to which Authority has the power of selling the shares for converting it into the amount and the amount being claimed by the claimant so realized. This can be considered a measure of Investor Protection as Companies expeience many corporate restructurings, including mergers, demergers, delisting etc. Also, in the event of such restructuring or in the event of the company’s failure in the event of insolvency, the value of the share gets eroded. Subsequent to a period of limitation (say 20 or 25 years), the claims can be considered time-barred.

Questions which may be considered for suggestions

The following questions can be considered regarding the refund process at IEPF Authority.

1.  If the approval process of claims filed remains with Authority, delegated to the Company up to a threshold for certain types of claims, or is it delegated completely?
2.  If the shares and amount be transferred by the IEPF directly to the claimant or to the co., which will further transfer it to the claimant?
3. Should any threshold of limitation be introduced for settlement of claims only as a value of share or time-barred?

Conclusion

The consultation paper provides clarification on the documents required for the refund process, the process of refund, the reasons for the rejection of the claim application and the various changes made to the IEPFA (Audit, Account, Transfer and Refund) Rules over time.  The steps taken by the IEPFA for easing the refund process can definitely smoothen and simplify the refund process at IEPF Authority, which can be beneficial for both the claimant and the company.   

Also Read:
IEPF Compliance for a Company: An Overview
Understand Investor Education and Protection Fund in Detail

Consultation-Paper-IEPFA-20230110