Lost And Unclaimed Shares Recovery Process in India

Shreya Patel

27 May, 2024

Shares are units of a company’s assets, voting rights and profits. Shares are a kind of ownership. Shareholders become a part of the company when they buy shares, allowing them to participate in the company’s development and success. The importance of shares resides in their capacity to produce a monetary benefit and allow individuals to participate in the company’s financial success. The possible rewards for the shareholders include dividend payments, financial gains, and exercising their voting rights. Shares allow investors to invest their savings and potentially a return on their investments. Unclaimed share is significant because of its effects on the corporate governance framework and the protection of the investors. Unclaimed shares are a sign of shareholder disengagement or unawareness, which results in dormant ownership and untapped advantages.

What do you mean by Lost or Unclaimed Shares?

The Indian financial sector offers investors a wide range of investment possibilities and alternatives. However, sometimes, investors forget about or fail to reclaim their funds. Unclaimed shares are ownership interests in a company that have been dormant for some time without being accessed or claimed by the rightful shareholder. Shares of a company that have been misplaced or lost by their legitimate owners are referred to as “lost shares.” These shares are considered unclaimed assets since the shareholders no longer own or control them. The majority of the time, unclaimed shares originate when the shareholders fail to exercise their ownership rights or forget to update their information with the particular company. As a result, the company cannot interact with the shareholders or provide them dividends or any other perks related to their shareholding. 

Difference between Unpaid and Unclaimed Share

Understanding the difference between unpaid shares and unclaimed share is crucial when it comes to investments and stocks. Although these words may sound similar, they allude to different notions and have different meanings for shareholders.

Shares that have been distributed to shareholders but have not been paid entirely for are referred to as unpaid shares. Shareholders are often compelled to pay a portion of the share’s worth upfront when a company issues shares. This portion is referred to as the subscription price. The shares are deemed unpaid if shareholders do not pay the entire subscription fee within the allotted period. On the other hand, unclaimed shares are those that have been completely paid for but have not yet been reclaimed by their legal owners. This circumstance frequently occurs for a number of reasons. Typically, unclaimed share happen when shareholders fail to collect their benefits, such as dividends, bonus share, or share sale earnings.

It is essential to understand that unclaimed shares come from shareholders’ lack of activity or ignorance, whereas unpaid shares are a result of non-payment. Unclaimed share revolve around the shareholder’s inability to exercise their rights and advantages as owners, whereas unpaid shares are primarily concerned with the financial responsibilities of shareholders to the company.

Unpaid shares and unclaimed shares have quite different implications. If shares are not paid for, the company may file a lawsuit to pursue payment from the shareholders. The defaulting shareholder would lose ownership if the company canceled the unpaid shares as a result of non-payment. On the other hand, unclaimed shares frequently result in the transfer of the shares to a different organization, such as the Investor Education and Protection Fund (IEPF) in India, which looks after unclaimed shares and takes action to make sure their rightful owners can get their hands on them.

Causes of Unclaimed Shares

1. Death of shareholders without proper succession plan: If a shareholder dies without an appropriate succession plan in place, the shares they hold may go unclaimed. If the shareholder does not inform their legal heirs about the shares, then also the shares can go unclaimed. In many situations, the ownership is ambiguous since there are no clear instructions on how the shares should be transferred or passed on to the rightful heirs. 
2. Shareholder negligence towards updating their contact information: Shareholders may neglect to update the contact information with the company or the company registrar, which can result in incorrect or outdated information. Important notifications about the dividends, rights issues, or other company activities may then be sent to either an incorrect address or can be misplaced as there is the absence of the current contact information of the shareholder. As a result, the shareholders might not be aware of their rights, leading to unclaimed shares. 
3. Lost share certificates: Investors utilized tangible share certificates in the beginning when they bought shares. These certificates, which were printed on actual paper, reflected ownership of shares or debt obligations in a company. But these certificates’ tangible character presented a number of difficulties. They were difficult to store safely and prone to deterioration, loss, or misplacing. The share/debenture certificates were frequently lost or destroyed due to events like moving to a new location or the natural wear and tear of the certificates. Unfortunately, the likelihood of completely recovering the value of missing share certificates was relatively low.
4. Dissolution of companies or mergers/acquisitions: Confusion over the status of the shareholder’s rights might arise at the time of dissolution of the company or when the company is involved in a merger or acquisition. In such circumstances, shareholders can be unaware of the steps they must take to assert their ownership of the shares, which can also lead to unclaimed shares. 
5. Not updating bank information: Companies can encounter difficulties while paying dividends to shareholders. These difficulties could be caused by problems like incorrect mailing addresses, missing or lost cheques, or shareholders who fail to cash their dividend cheques. Additionally, if shareholders have changed their bank account details or their accounts have been dormant, they won’t receive the credited dividends in their bank accounts.

The recovery process of unclaimed shares

Unclaimed shares are recovered by a process that entails a number of stages meant to track down and claim the unclaimed share to their rightful owner. This procedure ensures that the investments of shareholders are protected and that the unclaimed shares are managed effectively. 

• To recover the unclaimed shares, first, the documents that claim the ownership of the shares are to be gathered. 
• The documents which indicate the proof of ownership are to be assembled. After which, the application form to recover the unclaimed shares is to be filled and submitted along with the documents required. 
• The form to claim the unclaimed shares from IEPF is Form IEPF-5. 
• This application form and documents are required to be submitted to the company registrar of the IEPF Nodal officer. After which, the Nodal officer or the company register will go through the application and the documents to verify them. 
• The company registrar or Nodal officer then has to submit the report of the verification of the claim and the supporting documents to the authorities of IEPF¹.
• The IEPF authority has the last say in determining whether the unclaimed shares can be claimed or not. If the IEPF authority approves the request to recover the unclaimed shares, then the funds are transferred to the DEMAT account.

Conclusion

The unclaimed shares issue must be addressed to maintain transparency, investor trust and effective corporate governance. The stakeholders can defend shareholder rights, protect the investments, and promote an environment of responsible ownership in the capital market by increasing awareness of unclaimed shares and advocating the recovery process.

Frequently Asked Questions

Read Our Article: Shareholders’ Rights and Options for Recovering Shares from the IEPF

1. https://www.iepf.gov.in/content/iepf/global/master/Home/Home.html