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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 5th 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. The present article shall discuss the aspects covered in the consultation paper to provide clarity on the same.
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:
The refund process at IEPF Authority is enumerated below –
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.
Once the application is filed by the claimant, it is transferred to the company’s Nodal Officer in MCA21.
Upon the receipt of the application to the nodal officer, a verification report is furnished by such officer to the Authority.
Subsequent to the furnishing of the verification report, the claims are processed in the IEPF authority for refund.
Any discrepancy or objection and even the approval is communicated to the claimant via system-generated emails
The shares are refunded through the depository system after the objection and discrepancies are sorted.
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|
The categorization of Claims filed by the authority is demonstrated below –
The important documents with regard to the same are enlisted below –
Some of the major reasons for discrepancies in the claim filed with the Authority are
The claim can be rejected for the following reasons-
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-
After this, there was further relaxation of the rules through IEPFA (Accounting, Audit, Transfer and Refund) Second Amendment Rules 2021. Changes were as below:
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.
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.
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.
The following questions can be considered regarding the refund process at IEPF Authority.
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.
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