Finance Business

Understand Investor Education and Protection Fund in Detail

IEPF stands for Investor Education and Protection Fund. It was formed under Section 205C of the Companies Act 1956. This is used to promote investor awareness as well as protects the investors’ interests. The dividends of the AMCs (Asset Management Companies), matured deposits, share application interests/money, debentures etc. are pooled in that are unclaimed for 7 years. Section 124(5) of the Companies Act provides that the amount that is transferred to the unpaid dividend account of a company which is unpaid or unclaimed by a shareholder for 7 years shall be transferred with interest accrued to the IEPF.

Claiming unpaid dividend amount

The Ministry of Corporate Affairs, in 2016, had notified IEPF to permit investors to seek a refund on their unclaimed rewards. In order to claim refund, the investors need to file e-form IEPF-5 along with the necessary documents.

The shareholders should file this form under Section 125(3) (a) of the Act & Rule 7(1) of Investor Education and Protection Fund (IEPF) Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 in order to claim their unpaid dividend amount transferred to the IEPF. Previously there wasn’t any provision for the claims of genuine investors.

Objective of Investor Education and Protection Fund

The objectives of IEPF has been summarised below:

• Making investors aware about the manner in which market functions;
• Educating investors to be able to analyse and make informed decisions;
• Helping investors in realising their rights and understanding laws on investing;
• Promoting research and surveys to impart knowledge among investors.
• Helping investors to be aware and vary of market volatility.

Various types of IEPF Forms

TYPE OF FORM	FORM DETAILS	TIMELINE OF FORM
IEPF 1	Statement of amount credited to IEPF	Within 30 days of the amount becoming due to be credited to IEPF.
IEPF 2	Statement of the unclaimed or unpaid amount;  Details of Nodal officer	Within 60 days of the AGM;     Within 15 days of the rule/ any change in the nodal officer within 7 days of such change.
IEPF 3	Statement where transfer of amount to the IEPF is not needed	Within 30 days of the end of Financial Year.
IEPF 4	Statement of shares transferred to IEPF	Within 30 days of the corporate actions by company.
IEPF 5	Claimant files the claim	–
IEPF 7	Funds transfer to IEPF in specified bank account in the following cases:   Company de-listCompany wound upAny further dividend (shares already transferred)	In 30 days of transferring funds to IEPF.

Let’s discuss these forms one by one in detail-

• IEPF 1

This form is used to file Statement of amounts credited to Investor Education and Protection Fund and it should be filed within 30 days of the amount becoming due to be credited to IEPF^[1]. The amount due to be credited to IEPF account includes- amount from unpaid dividend, application money obtained but due to be refunded, matured deposit/debenture by the company, proceeds of sale of any bonus shares, grant or donation.

• IEPF 2

This form is filed under rule 5(8) and 7(2B) for statement of unpaid or unclaimed amount, appointment of nodal officer and deputy nodal officer, updating/cessation details of nodal officer and deputy nodal officer. This form should be filed within 60 days from AGM or the due date, whichever is earlier. In the matter of nodal officer/deputy nodal officer, the form has to be filed within 7 days. It includes the details of nodal officer (if it is filed for that purpose), details of unpaid or unclaimed amount for last 7 years, amount of dividend declared on shares transferred to IEPF and any other benefit declared on the shares.

• IEPF 3

Company or bank should transfer shares or dividend under Section 125 to IEPF, however, due to the order of a court, tribunal or any statutory authority, if the company/bank doesn’t transfer it, the same details should be filed by them in IEPF 3. The time limit for filing of this form is within 30 days from the end of the financial year.

• IEPF 4

The Company is required to give a statement to the authority in Form IEPF 4 within 30 days of the corporate action taken having the details of such transfer with a copy of the order of Tribunal under Section 90(8) of the Act. Moreover, a declaration is also needed stating that no application under Section 90(9) has been made or is pending before the Tribunal.

• IEPF 7

The amount required to be credited to the fund by the companies will be remitted to the specific account of the IEPF Authority maintained in the Punjab National Bank. The details thereof have to be furnished to the Authority in Form IEPF-7 within 30 days from the date of remittance. The details include transaction details like transferee bank name, bank transaction ID, proceeds realized from delisting of shares and winding up of company. 

Amount to be credited to the Fund and Fund Utilization

Amount to be credited to the fund

The following type of amount can be credited to the fund:

• Donations/grants by Central Government;
• Interest or other income obtained from investments made from the fund;
• Amount in unpaid dividend account of company;
• Application money obtained for allotment and due for refund;
• Matured deposits or debentures;
• Sales proceeds of fractional shares arising out of the issuance of bonus shares, merger and amalgamation for 7 years or more;
• Redemption amount of preference shares which is unclaimed or unpaid for 7 years or more;
• All shares and resultant benefits on such shares.

Fund Utilization

Funds shall be utilized for the following:

• Refund of unclaimed dividends, matured deposits and debentures, application money due for refund and interest;
• Promotion of the education of investors, awareness and protection;
• Distribution of any disgorged amount among eligible & identifiable applicants for shares or debentures, debenture holders or depositors, shareholders who have incurred losses because of the wrong actions of any person, as per the orders made by the court;
• Reimbursement of legal expenditure incurred in pursuing class action suits under section 37 and 245 by members, debenture-holders/depositors as sanctioned by the tribunal;
• Any other purpose in accordance with such rules as may be prescribed.

Important cases related to the Investor Education and Protection Fund

• Pragana Desai vs. National Stock Exchange of India Ltd.

In this case a writ petition was filed to recover the amount awarded in the arbitration against the IEPF. The court ruled that a writ petition is not a remedy to enforce the award and held that the petitioner should commence procedures for the execution of award by making application under the relevant provisions and statutes.

• India awake for transparency vs. Union of India

In this case, the Delhi high court had clarified that Section 124(6) of the Companies Act, 2013 which provides for the transfer of shares to the IEPF, doesn’t essentially result in statutory vesting of the property. The IEPF only enforces a transfer of shares from the company that has accumulated unclaimed dividends for a 7 year period or more to the IEPF and the authority of the fund holds shares as a custodian or in any other manner after the transfer of such shares.

Conclusion

Investor Education and Protection Fund Authority was set up by the Government of India in 2016 for administration of the Investor Education & Protection Fund under the provisions of section 125 of the Companies Act, 2013. This Authority is entrusted with the responsibility of administration of the IEPF.

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