Transfer of Shares to the Investor Education and Protection Fund (IEPF)

[The
following post is contributed by Pammy
Jaiswal
, who is an Associate at Vinod Kothari & Co, and can be reached
at pammy@vinodkothari.com]
Introduction
By way of its notification dated 28
February 2017, the Ministry of Corporate Affairs (MCA) had tried to simplify
the procedure for transferring shares to the Investor Education and Protection Fund
(IEPF) Authority. In doing so, it had left various questions unanswered. For
instance, rule 6 of the Investor
Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund)
Amendment Rules, 2017 (‘IEPF Amendment Rules’) stated that companies would be
required to transfer the shares to the IEPF demat account. However, the same
did not mention anything regarding the expected time frame by which such
accounts would be open or as to the modalities of transfer at the depository
level. As a result of this, corporates were faced with ambiguities regarding the
ways to effect the transfer of shares to the IEPF account.
IEPF
Special Demat Account
Finally,
after much speculation on the above and almost two months from the release of
the IEPF Amendment Rules, 2017, the MCA by way of its general circular no
03/2017 dated 27 April 2017
has untied a few of the knots contained in the
said Rules. The said circular deals with the following:
1.   The
IEPF Authority has decided to open a special demat account with the National
Securities Depository Limited (NSDL) through a depository participant (DP) of
NSDL.
2.   The
said demat account will have special features and functions to support digital
operations and facilitate the record keeping of the shares transferred to IEPF
(a)      Details
of such accounts are yet to be circulated which makes the circular less capable
of direct execution.
3.   Information
related to the shareholders whose shares are being transferred will be provided
to the NSDL in the prescribed format.
(a)        Here again, the incompleteness of the
circular is evident in that it states that the prescribed file formats and
operational procedures for transfer will be provided by 30 April 2017 and 15
May 2017.
Fees
Burden on Companies
–     Fees
at the time of effecting transfer will be Rs. 10 per record subject to minimum
of Rs. 500;
–     Annual
Maintenance fees of Rs. 11 per record subject to minimum based on paid-up
capital of the company as follows:
Nominal Value of
Admitted Securities (Rs)
Annual Custody Fee
Payable by Company (Rs)
Up
to Rs. 5 crore
2,700
Above
Rs. 5 crore and up to Rs. 10 crore
6,750
Above
Rs. 10 crore and up to Rs. 20 crore
13,500
Above
Rs. 20 crore
22,500
–     The
aforesaid charges will be in addition of the fees charged by depositories for
corporate actions.
–     By
mentioning a minimum limit as to the amount for maintenance fees, unnecessary burden
has been created on those accounts which have barely a few folios to transfer.
Incomplete
reference to the IEPF Amendment Rules, 2017
At the very beginning, the circular
refers to the second proviso to rule 6 of the IEPF Amendment Rules, 2017
stating – “Pursuant to the second proviso
to Rule 6 of the Investor
Education and Protection Fund Authority (Accounting, Audit, Transfer and
Refund) Amendment Rules, 2017 notified on February 28, 2017, where the seven year period provided under
sub-section (5) of section 124 is completed during  September 7, 2016 to May 31, 2017
, the
due date for transfer of such shares by companies is May 31, 2017”.
However,
the actual text of the said provision is – “
Provided further that
in cases where the period of seven years provided under sub- section (5) of
section 124 has been completed or being
completed during the period from 7th September, 2016 to 31st
May, 2017,
the due date of transfer of such shares shall be deemed to be
31′ May, 2017
.
Accordingly,
31 May 2017 is the due date for transferring shares in both the following
cases:
·       
7 year period has already completed; or
·       
7 year period will be completed during the period starting from 7
September 2017 until 31 May 2017.
Conclusion
Although
the circular has set out some of the procedural requirements, it has kept users
in suspense regarding the so called modalities from both the end of the MCA as
well as NSDL. MCA should speed up its process to fix the modalities for
effecting transfers to the IEPF demat account.
– Pammy Jaiswal

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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