Recovery of Shares

Recovering Dividends from Unclaimed Shares: Key Insights and Procedures

Recovering Dividends from Unclaimed Shares: Key Insights and Procedures

In the world of investment, unclaimed shares are a chronic problem that might have serious repercussions for both shareholders and businesses. The recovery of dividends from these unclaimed shares is one particular component that is sometimes disregarded. Dividends, which are a percentage of a company’s profits delivered to its investors, are essential for creating wealth for shareholders. However, when shares are unclaimed, dividends go undistributed, costing investors money and leaving corporations with unutilized capital. The Indian financial sector offers a variety of investment opportunities and prospects to investors. However, there are several circumstances under which money may go unclaimed. A redemption or dividend check’s equivalent amount is considered unclaimed if the investor fails to cash it before it expires.

What is unclaimed dividend?

Dividends that have been paid out by a company but haven’t been collected or claimed by the shareholders are known as unclaimed dividends. Since the company is required to pay out unclaimed dividends whenever they are requested, these unclaimed dividends represent a liability for the business. Unclaimed dividends are portions of the company’s profits that are owed to shareholders that have not yet been paid or received. They occur for a variety of reasons, such as incorrect processes being followed, obsolete contact information, or ignorance. Companies and shareholders must work together to effectively manage and reclaim the problem of unclaimed dividends. Both parties can minimize the financial damage and maximize the advantages of dividend distribution by keeping correct records, improving communication, and adopting proactive measures.

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Reasons for unclaimed dividends

  • Failure to update the bank details
  • Demise of the primary shareholder without informing the inheritors about the same
  • Change in address
  • Loss or damage to the physical form of certificate

How are unclaimed dividends managed?

For a specified time, the company retains unclaimed dividends and shares on behalf of the shareholders. These eventually move to the Investor Education and Protection Fund (IEPF) account, which is managed by the Ministry of Corporate Affairs, if they go unclaimed. The Companies Act of 20131 mandated the establishment of the IEPF Authority, whose duties include advancing investor education, increasing awareness, and defending investors’ interests.

A thorough database of unclaimed dividends and shares is kept by the IEPF. By according to the IEPF’s approved procedure, shareholders can obtain their unclaimed dividends and shares. The IEPF’s first priority is the preservation and interests of the unclaimed dividend sums’ lawful owners, whose recovery of those funds is ensured.

Dividends that go unpaid and unclaimed for more than seven years are transferred, together with any accumulated interest, to the Investor Education Protection Fund (IEPF). The business must provide all essential information about the transfer in a statement on Form IEPF-1 to the IEPF Authority. The Authority then takes ownership of the monies and gives the firm a receipt as proof of the transfer.

Difference between unpaid and unclaimed dividends

Unpaid and unclaimed payments differ from one another in terms of ownership and status.  

Dividends that have not yet been paid out to shareholders after being declared by a company are known as unpaid dividends. In this instance, the company is still in charge of and liable for the dividends, which are due to the shareholders. Although the company has acknowledged its obligation to pay dividends, administrative procedures like checking shareholder data or issuing dividend checks might cause delays in the distribution of the money.

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Unclaimed dividends, on the other hand, are those that have been paid out by the company to shareholders but have not yet been claimed. These dividends have been distributed and are no longer directly within the company’s control. However, there are a number of reasons why shareholders might fail to collect their dividends, including incorrect contact information, negligence, or ignorance about the dividend payment.

Procedure of recovering dividends from unclaimed shares

Following a certain process is necessary to retrieve dividends from the Investor Education and Protection Fund (IEPF). The applicant must finish the application form supplied by the IEPF and include the entire information essential as described before in order to start the procedure.

Once the form has been properly filled out, it should be submitted to the Nodal Officer or Registrar of the company from which the dividends are due, together with the necessary supporting documentation. These documents normally comprise ownership evidence, identity proof, and any other supporting information that the IEPF may require.

Within 15 days, the business evaluates the application and supporting papers and creates a verification report. The IEPF Authority receives this report after that for final approval. This procedure serves to validate the accuracy and legitimacy of the applicant’s information.

The IEPF Authority carefully evaluates the application and supporting documentation to determine its legitimacy after obtaining the verification report. The authority then goes on to handle the refund if everything is confirmed to be in order. It is significant to note that from the moment the application is received, the refund procedure may take up to 60 days. Without the right legal advice and direction, recovering shares from the IEPF may be a difficult and time-consuming procedure.

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Conclusion

In a nutshell the process of recovering dividends from unclaimed shares is vital and advantageous to both shareholders and businesses. In order to guarantee that shareholders receive their due compensation, dividends from unclaimed shares might be recovered. Dividends play a key role in maximizing shareholder value and wealth. Shareholders are urged to be proactive in recovering dividends from unclaimed shares since companies are required to provide dividends to qualified shareholders. Dividend recovery also fosters transparency and responsibility within businesses. They may protect their financial interests and contribute to a more transparent and accountable business environment by becoming familiar with the recovery process and remaining informed.

Frequently Asked Questions

  1. How do I claim unclaimed dividends and shares from an IEPF?

    You can claim unclaimed dividends and shares from IEPF by submitting a online application for the same in Form IEPF – 5.

  2. Do unclaimed dividends expire?

    The unclaimed dividends are transferred to IEPF after seven years.

  3. Who can help recover unclaimed dividend in India?

    Investors Education and Protection Funds can help in recovering the unclaimed dividend in India.

  4. What happens to shares not claimed?

    The shares that are not claimed for seven years are then transferred to IEPF by the company.

  5. What is the time limit for unclaimed dividends?

    The time limit for unclaimed dividends is within seven years.

  6. What is the procedure for unclaimed dividend?

    To claim the unclaimed dividend the application is to be made by the Form IEPF-5 and is to be submitted along with the essential documents to the Nodal Officer of the company, who will then verify the information and send the report to the IEPF, who will then recover the unclaimed dividends.

  7. What happens to the unclaimed dividend?

    The unclaimed dividend is transferred to IEPF.

Read Our Article: Unclaimed Dividend and Shares: Reclaiming Your Rights

References

  1. https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf

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