This article is written by Ravi Karan, pursuing a Diploma in Companies Act, Corporate Governance and SEBI Regulations from LawSikho.com. Here he discusses “Investor Education and Protection Fund (IEPF)”.

What is IEPF

“Mutual fund investments are subject to market risks, please read the offer document carefully before investing”. Does this monotonous monologue sound familiar to you?

This is one of many initiatives undertaken by Central Government of India under the scheme of investor education and protection fund (here-in-after referred to as IEPF)

IEPF is governed by Section 125 of the companies act, 2013.  IEPF was set up under section 205 C of the Companies Act 1956 by way of Companies (Amendment Act) 1999 to promote investors awareness and protection of investor interest.

The proceeds from the fund are used for:-

• refund of unclaimed dividends, matured deposits, matured debentures.
• For Refund of application money due for refund and interest.
• Promotion of investors education, awareness and protection.
• Payment of disgorged amount to applicants in accordance with disgorgement orders made by the court.
• Reimbursement of legal expenses by members, debenture holders or depositors. incurred in pursuing cases sanctioned by a tribunal under sec 37 and 245 of companies act 2013.

Where does IEPF get funds from

Funds are credited to IEPF through various sources. Some of them are illustrated below:-

• Grants by Central Government.
• Donations by Central and State Governments, Companies and other institutions. 
• Unpaid dividend account held by Companies transferred to IEPF.
• General revenue amount of central government which is unclaimed & unpaid before the commencement of companies amendment act 1999 is transferred to IEPF under subsection 5 of section 205A of companies act 1956.
• Amount lying in investor education and protection fund under section 205 c of companies act 1956.
• Application money received by companies for allotment of any securities and due for refund.
• matured deposits with companies other than banking companies.
• Redemption amount of preference shares remaining unpaid or unclaimed for seven or more years and such other amount as may be prescribed.

IEPF Authority

Central Government shall form IEPF authority consisting of not more than seven members that comprises of chairperson (he/she should be secretary minister of corporate affairs), CEO, Executive directors nominated by RBI and SEBI as ex-officio member and other members with more than 15 years of experience in finance, management, accountancy, or law.

IEPF Authority is responsible for the administration of IEPF; educating investors about fair and safe investing; refunds of shares, unclaimed dividends, matured deposits/debentures to investors.

Since its inception, the IEPF Authority has delivered to its mandate of investor education and protection by conducting various awareness program through Partner Institutions & CSC e-governance Services India Ltd, and Ministry of Communications & IT.  Several awareness programs were conducted in association with organizations such as ICAI, Institute of cost accountants of India, ICSI, Institute of corporate affairs and National foundation for corporate governance. These initiatives focused on educating about the importance of investing, Primary/Secondary capital markets, information on mutual funds, debentures, equity, company fixed deposits, pension funds, investment policies etc.

Process of transferring funds to IEPF by Companies 

When a company has declared a dividend but that has not been claimed/paid within 30 days from the date of declaration, the company shall transfer the amount to an Unpaid Dividend Account registered with a scheduled bank.

A company should publish a statement on its website containing names/addresses/unpaid dividend to be paid to each person within 90 days of transferring the amount to Unpaid Dividend Account.

Default in the transfer of the amount to Unpaid Dividend Account shall attract interest penalty of 12% per annum, and the same will be transferred to the benefit of members in proportion to unpaid amount with each of them.

Any person claiming to be entitled to any money transferred under sub-section (1) to the Unpaid Dividend Account of the company may apply to the company for payment of the money claimed.

Any amount in Unpaid Dividend Account that has not been claimed or paid for a period of seven years from the date of such transfer shall be transferred to Investor education and protection fund. Details of such transfer shall be sent in a statement by the company to IEPF Authority which in turn shall issue a receipt to the company.

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A dividend can be claimed by the beneficiary even after seven years in accordance with procedure and submission of documents to IEPF authority. In case an applicant wants to claim a refund for unclaimed money from IEPF, then he/she shall submit IEPF Form no 5 to IEPF authority that is constituted under sub-section 5 of Section 125 of the companies act 2013.

Failure to comply with requirements by the company attracts a penalty of not less than INR 5 Lakhs that may go up to INR 25 Lakhs, also every defaulting officer of the company will be fined anywhere between INR 1 Lakh to INR 5 Lakh. 

Procedure on part of shareholder/claimant to claim shares/dividend amounts from IEPF authority 

• A shareholder is required to open a De-mat account with NSDL/CDSL.
• Fill claim form (IEPF Form no 5) and submit the same on the website of IEPF. 
• SRN will be generated as an acknowledgement for future tracking of the form.
• Applicant to send signed copy of claim form, acknowledgement copy, indemnity bond to be executed on a non-judicial stamp paper if the amount of the claim is INR 10,000 or more or on a plain paper if the amount claimed does not exceed INR 10,000. 
• Advanced stamped receipt with signature of the claimant and two witnesses. 
• Self- attested copy of PAN card & Aadhar Card.
• Proof of entitlement, cancelled cheque, copy of passport, transaction statement showing debit/transfer of shares to IEPF if shares were held in Demat form, original share certificate.
• Other procedural requirements include 

1. Share-holder will seek details of dividend and shares from the company. 
2. Company will issue an entitlement letter to the shareholder.
3. Company to release a verification report post-inspection of required documents.
4. The shareholder should submit a verification report to IEPF Authority within 15 days of receipt of the claim along with details as mentioned in IEPF Form 1 and IEPF Form 4.
5. IEPF authority will release the claim post verification by IEPF.

Investor Awareness Program (IAP)

Investor awareness programs are organized by IEPF Authority through various partners in order to create a massive awareness drive throughout rural, semi-urban & urban areas. 

Programs are held in association with Professional Institutes (PI), Educational institutes, local trade & business chambers. 

• Each program conducted by PI shall have 100 or more participants. 
• Invitation of the program should be sent to MP/MLA/local public representative along with an officer from concerned ROC.
• Resource persons (RP) shall conduct programs in district towns and small towns/cities in a district. 
• A detailed write-up of the program, photographs and attendance sheet should be submitted by RP’s and PI’s to the authority & same shall be uploaded on IEPF portal.

Impact Assessment Report 

As per the impact assessment report (2018) prepared by the Department of management studies, IIT Delhi – 

More than 93% of the beneficiaries of IAP informed that they understood the content of the program and intend to attend similar programs in future. 

More than 80% of beneficiaries of IAP gained knowledge about opening a bank account, using ATM facility, deposit and withdrawal of money and signing bank cheques for payment. 

The respondents to the survey conducted by IIT Delhi are more confident in planning their monthly expenses now, have a better understanding on impact of inflation on their savings, have an ability to invest in buying their own land/house/property with their savings, and also are keen to protect future of their family through insurance policies.

Key forms to be submitted to IEPF

1. Statement of amounts credited to IEPF – IEPF Form – 1.
2. Statement of unclaimed and unpaid amounts – IEPF Form – 2.
3. Statement of shares & unclaimed/unpaid dividend that is not transferred to IEPF –IEPF – Form -3.
4. Statement of shares transferred to IEPF – IEPF Form – 4.
5. Application to authority for claiming unpaid amounts & shares out of IEPF – IEPF Form5.
6. Statement of unclaimed/unpaid amounts to be transferred to IEPF – IEPF Form – 6.

All these forms can be downloaded from this website.

Key achievements of formation of IEPF/IEPF Authority

One of the biggest success of IEPF Authority has been to enforce Peerless General Finance and Investment Company Limited to transfer deposits worth INR 1514 Cr to IEPF. This amount was taken by the company by issuing more than 1.49 Cr deposit certificates and include more than INR 1 Cr individual investors. Authority has also launched an online facility to collect primary information from retail investors about their matured deposits which are pending for repayment. The authority has also issued more than 4000 notices to the companies under section 206(4) of the companies act 2013. The funds were pending with the company for the last 15 years. The size of IEPF fund has almost doubled within a year to about INR 4138 Cr. It has certainly been a successful initiative by the government of India.

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