IEPF Authority (Accounting, Audit, Transfer, and Refund) Amendment Rules, 2021

The MCA has issued The IEPF Authority (Accounting, Audit, Transfer, and Refund) Amendment Rules, 2021 on June 9th, 2021 for amendment of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer, and Refund) Rules, 2016. Here in this article, we will look into the IEPF Authority Amendment Rules 2021.

Highlights of IEPF Authority Amendment Rules 2021

The MCA in the recent amendment prescribes the method of transferring the shares to the Investor Education And Protection Fund Authority (the authority) under Rule 6A. It has also notified the revised forms of IEPF-4 and IEPF-7.

The Companies Act, 2013

Section 90 of the Companies Act, specifies that every individual holding the beneficial interest of not less than 25% in the shares of the company or having the right to exercise or actual exercise of control over the company has to make a declaration mentioning the nature of his interest along with other particulars.

If the companies believe that the individual is a beneficial owner, they have to give a declaration. The company can apply to the Tribunal if the individual does not give a satisfactory response.

But if the company does not file such an application within 1 year, the shares will be transferred to the IEPF created by the Central Government under Section 125. This is mainly done for the promotion of the investor’s awareness and protection of the investor’s interests.

If an amount is to be credited to the IEPF under Section 125, it shall be remitted online along with a statement in Form IEPF-1 within 30 days of becoming due. On receipt of the statement, the IEPFA will make entries in the register and reconcile the remitted amount with the concerned designated bank on monthly basis.

So in short, the amendment states that all the shares which are held by the Authority and all the resultant benefits which are arising out of such shares are to be credited to the fund.

The Investor Education and Protection Fund Authority (Accounting, Audit, Transfer, and Refund) Rules, 2016

 These Rules were introduced by MCA to administer the IEPF which was constituted under Section 125 of the Companies Act. The 2016 Rules discuss in-depth about the IEPFA and the fund which are credited to the IEPFA.

All the term deposits and debentures, are to be transferred to the IEPFA fund alongside with the matured amount of the deposits and debentures. If a person has unclaimed dividends, matured deposits, or debentures, and it has been transferred to the fund, they can claim for a refund in IEPF-5. Rule 8 states the power to direct the payment due to the fund. The company has to furnish the statement in form IEPF 6 stating the due amount. Rule 9 talks about the transfer of all the assets and liabilities of the existing IEPF to the authorities.

IEPFA

Investor Education and Protection Fund Authority (IEPFA) was established by Government on September 7th, 2016. It has been established for better administration of the Investor Education and Protection Fund under section 125 of the Companies Act. Their main task is to refund the shares, unclaimed dividends, and matured deposits and debentures. The IEPFA also has to maintain proper accounts and prepare the annual statements in prescribed forms of the Central Government and in consultation with the Comptroller and Auditor-General of India. They have to promote investment awareness among the investors.

IEPF Authority Amendment Rules 2021

• Rule 3 sub-Rule 2 Clause (fa): This new clause clarifies that in addition to the existing amounts which are credited to the fund, it will also include the amount mentioned in Section 90(9) of the Companies Act and the resultant benefits which are arising from such shares.
• Rule 6A- Transfer of Shares: Rule 6A of the IEPF Authority Amendment Rules 2021 discusses the procedure of transfer of shares to the authority. Firstly the shares are going to be credited to the DEMAT account of the fund within 30 days of shares becoming due to be transferred. Furthermore, the transfer will be deemed to be the transmission of shares. These transfers will be free from any type of restrictions and cannot be claimed back.

Procedure for Transfer of Shares

In case the shares are dealt in the depository-

Firstly, the company has to inform the depository about the transfer in favour of IEPFA. Secondly, when the depository receives the intimation, it shall affect the transfer of shares in the favour of IEPFA.

In case the transfer of shares are held in the physical form-

Firstly any person authorized by the Board or the CS shall inform the depository about the transfer of shares. They have the power to make an application for the issuance of a new share certificate.

The depository will make the transfer and the shares will be held in the physical form. Additionally, the application is made for a new share certificate in Form SH-1. The certificate shall state that “Issued in lieu of share certificate No….. for the purpose of transfer to IEPF under Section 90(9) of the Companies Act, 2013” and the same is recorded in the register maintained for the purpose.

After the issue of the new share certificate, the company has to inform the depository and place the request to convert the share certificate into the DEMAT form and transfer the share.

Revision of Forms IEPF-4 & IEPF-7

Forms IEPF-4 and 7 were updated in the IEPF Authority Amendment Rules 2021. These e-forms should be submitted according to the requirement mentioned under the newly inserted Rule 6A of the 2016 Rules.

While effecting the transfer of share, companies are supposed to send form IEPR-4 within 30 days of the corporate action stating the details of such transfer. The statement has to be taken under Rule 6A(4) of the IEPF Authority Amendment Rules 2021. The company has to attach a copy of the order of the Tribunal under Section 90(8) of the Companies Act with a declaration that no application is pending before the Tribunal under  Section 90(9) of the Companies Act.

If any amount is to be credited to the Fund, it shall be remitted into the IEPF account. The details of the remittance have to be mentioned in form IEPF-7 within 30 days of remittance.

Other key amendments in IEPF Authority Amendment Rules 2021

• If the company is getting delisted, they can surrender the shares in accordance with the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009.
• All the benefits of the company have to be credited to the DEMAT.The proceeds will be credited to the fund. A separate ledger account is maintained for such transfer.
• Any amount which are to be credited by the companies to the authorities as given under sub-Rules 9, 10 and 11, shall be remitted into a specific account of the Authority which is maintained in the Punjab National Bank. The details of the same will be given to the Authority in Form IEPF-7 within 30 days from the date of remittance.
• The voting rights on the shares held by IEPF will remain frozen. But they are not excluded while calculating the total number of voting rights.
• In case of non-compliance with these Rules, the Authority should furnish their report to the Central Government.

Conclusion

The IEPFA has taken a proactive approach in investor awareness and protection. The recent amendment of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer, and Refund) Rules, 2016 is a welcome step. This amendment brings more clarity in the procedure of transfer of share, and it also revised forms IEPF-4 & IEPF-7.