What is Investor Education and Protection Fund (IEPF) and how shares are transferred to this fund?

To protect investors' interests and promote awareness, IEPF was established under Section 125 of the Companies Act, 2013 ('Act'). All unpaid dividends or unclaimed amounts belonging to a company's investors are pooled and credited into the IEPF. The IEPF Authority will utilize and spend the money of the IEPF funds only for the purposes mentioned in the Act.
Let us understand this with an example. Ankit bought 100 shares of Reliance Industries Limited (NSE: RELIANCE) on its first IPO i.e. 1995. Since at that time all the shares were in physical form so he was given shares in a physical, paper document form. He somehow eventually loses these share certificates. Years later, he remembers that he had bought certain number of shares of Reliance Industries Limited. On enquiring he comes to know that these shares have now been transferred to IEPF.

Now the question is why did this happened & what is IEPF?

All the Indian Companies as per Companies Act, 2013 are compulsorily required to transfer unclaimed shares and dividends to a Government Fund known as ‘Investor Education and Protection Fund’. Since this fund is laying unutilized so the objective of Government is to make best use of it until someone comes to claim it.

What is the process taken by Companies to Transfer this Fund?

Step 1: A Company declares dividend and issues dividend warrants to physical shares owners but if not claimed within 30 days from the date of the declaration, then the company is compulsorily required to, within 7 days from the date of expiry of the said period of 30 days, transfer the total amount of dividend to a special bank account called as Unpaid Dividend Account.
Step 2: The Company within 90 days of making any transfer of an amount to the Unpaid Dividend Account, prepare a statement containing the names, their last known addresses and submits it to the Government/IEPF Authority.
Step 3: Any person can at this stage directly apply to the Company for his Unpaid Dividend for payment of the money claimed and he will get his dividend directly from Unpaid Dividend Account.
Step 4: Any money transferred to the Unpaid Dividend Account of a company still remaining unpaid or unclaimed for a period of 7 (Seven) years from such date of transfer shall be transferred by the company to another special fund created by Government called as Investor Education and Protection Fund (IEPF Fund)
Step 5: All shares in respect of which above dividend is transferred to IEPF shall also be transferred by the company to the Investor Education and Protection Fund.
The above is the process which a Company follows to transfer shares to the Investor Education and Protection Fund.

What are the uses of this fund?

> To issue refunds in respect of unclaimed dividends, matured deposits, matured debentures, to the people who have genuine case.
> To promote investors’ education, protection and awareness
> To make payment to the shareholders or debenture holders, or depositors who have suffered losses due to wrong actions by any Company, as directed by Courts
> To reimbursement of legal expenses as incurred by shareholders or debenture holders, or depositors who have suffered losses due to wrong actions by any Company
Thus, it is clear that Government’s is just holding these shares on behalf of the shareholders and they are to be transferred to the person who has a genuine claim for the investment. It is specifically written in the act that the prime use of this fund will be to refund money to the Investors. Until then Government continues to enjoy the fund.

Process for claiming these shares from IEPF

1) Obtain an exact valuation of the shares including the shares, bouns shares, dividend on the shares and certify it from the Registrar & Share Transfer Agent (RTA) of the Company
2) Obtain an Authority Letter from the Company stating that the claimant is alive or his legal heirs are present
3) On obtaining an authority letter file a Form IEPF-5 on MCA portal
4) Get the same printed and submit it along with other documents like application form, ID proofs, Address Proofs, Affidavits, Dividend warrants, share certificates, Demat account details, Bank details to the Company
5) The company within 30 days from the date of receipt of physical application, submits a verification report to the Authority after verification of details in Form No. IEPF-5 after conducting the necessary enquiry at its level which may include a physical verification.
6) A verification is also conducted at the level of IEPF authority and it may call for further information or documents. Also, they may conduct a physical verification
7) After verification of the entitlement of the claimant by the IEPF authority the Drawing and Disbursement Officer of the Authority shall make the credit the shares to the DEMAT account of the claimant and disburse the entire dividend amount to the Bank Account of the Claimant.

Specific points to be taken care of at this stage

> In case, claimant is not the original shareholder and is either a joint owner or legal heir or successor or administrator or nominee of the registered share holder, then in such a case the claimant has to justify his claim with appropriate documents like probate, will or succession certificate.
> Every company nominate a Nodal Officer, who is generally the Company Secretary of the company, for the purposes of verification of claims and coordination with the claimant and Investor Education and Protection Fund Authority
> The following laws have to be followed for submission of claims otherwise it can be rejected at any stage by the Company or IEPF Authority:

• Companies (Share Capital and Debenture) Rules, 2014
• Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulation, guidelines, procedures and circulars issued from time to time
• Companies Act, 2013 and other applicable rules and regulations

Who are we and how can we help in the recovery process

We at KAA Recovery Advisors Pvt. Ltd, with a team of 10+ people including Chartered Accountants, Company Secretaries & Lawyers, understand that the end-to-end recovery process requires a patient, professional approach and thus our roles come into picture.
We can help the claimant end-to-end from calculation of his claim amount to the recovery of his claim. We offer the following services in this regard:
1) Calculation of the Claim amount for the claimant and certifying form the RTA of the Company
2) Opening of a Demat Account of the Claimant, if required
3) Filing of IEPF-5 to the authority
4) End to End following up with the RTA, Company and IEPF authority
5) Submitting necessary forms, documents, affidavits etc.
6) Making sure that the recovery process is completed in the shortest possible time