INVESTOR EDUCATION AND PROTECTION FUND

Section 205C of the Companies Act, 1956 provided for the establishment a Fund by the Central Government to be called the Investor Education and Protection Fund.  The same has been extended in the Companies Act, 2013 (‘Act’ for short) which repealed the Companies Act, 1956.

Section 125 (1) of the Act provides that the Central Government shall  establish a Fund to be called the Investor Education and Protection Fund (‘Fund’ for short). 

Source of Fund

The source of the Fund may be in the following ways-

• Grants by the Government and donations;
• By transfer of unpaid dividend account of companies;
• By transfer of amount in the general revenue account under section 205A (5) of the Companies Act, 1956;
• By transfer of amount in IEPF under Companies Act, 1956;
• By means of interest or other income received out of investments made from the Fund;
• By transfer of any amount in the Companies Act, 2013.

Grants and donations

There shall be credited to the Fund-

• the amount given by the Central Government by way of grants after due appropriation made by Parliament by law in this behalf for being utilized for the purposes of the Fund;
• donations given to the Fund by the Central Government, State Government, companies or any other institution for the purposes of this Fund.

Unpaid dividend account

Section 124(5) of the Act provides that any money transferred to the Unpaid Dividend Account of a company in pursuance of Section 124 which remains unpaid or unclaimed for a period of seven years from the date of such transfer shall be transferred by the company along with interest accrued, if any, thereon to the Fund.  The company shall send a statement in the prescribed form of the details of such transfer to the Authority which administers the Fund.  The Authority shall issue a receipt to the company as evidence of such transfer.

Transfer of amount under Section 205A (5) of Companies Act, 1956

Section 205A (5) of Companies Act, 1956 provides that any money transferred to the unpaid dividend account of a company in pursuance of section 205A which remains unpaid or unclaimed for a period of seven years from the date of such transfer shall be transferred by the company to the Investor Education and Protection Fund.

Section 125(2) (d) of the Act provides that the amount in the general revenue account of the Central Government which had been transferred to that account under section 205A (5) of the Companies Act, 1956, as it stood immediately before the commencement of Companies (Amendment) Act, 1999 and remaining unpaid or unclaimed on the commencement of the Act, shall be credited to the Fund.

Amount lying in IEPF under Companies Act, 1956

Section 125(2)(e) of the Act provides that the amount lying in the Investor and Protection Fund under section 205C of the Companies Act, 1956 shall be credited to the Fund.

Amount under various provisions of the Act

There shall be credited to the Fund-

• the amount received under section 38 (4);
• the application money received by companies for allotment of any securities and due for refund and interest accrued (this amount shall not form part of the Fund unless such amount has remained unclaimed and unpaid for a period of seven years from the date it became due for payment);
• matured deposits with companies other than banking companies and interest accrued (this amount shall not form part of the Fund unless such amount has remained unclaimed and unpaid for a period of seven years from the date it became due for payment);
• matured deposits with companies and interest accrued (this amount shall not form part of the Fund unless such amount has remained unclaimed and unpaid for a period of seven years from the date it became due for payment);
• share proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for seven or more years;
• redemption amount of preference shares remaining unpaid or unclaimed for seven or more years; and
• all other sums of money collected by the Authority as envisaged in the Act.

Amount under banking Act

All amounts payable as mentioned in section 10B(3) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, section 10B of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 and section 40A of the State Bank of India (Subsidiary Bank) Act, 1959 shall be credited to the fund.

Utilization of the Fund

The Fund shall be utilized for-

• the refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon;
• promotion of investors’ education, awareness and procedure;
• distribution of any disgorged amount among eligible and identifiable applicants for shares or debentures, shareholders, debenture holders or depositories who have suffered losses due to wrong actions by any person, in accordance with the orders made by the Court which had ordered disgorgement;
• any other purpose incidental thereto.

Transfer of shares to the Fund

Section 124(6) provides that all shares in respect of which dividend has not been paid or claimed for seven consecutive years or more shall be transferred by the company in the name of Investor Education and Protection Fund along with a statement containing such details as may be prescribed.

In case any dividend is paid or claimed for any year during the said period of seven consecutive years the shares shall not be transferred to the Investor Education and Protection Fund.

Penalty

Section 124(7) provides that if a company fails to comply with any of the requirements of section 124, the company shall be punishable with fine which shall not be less than ₹ 5 lakhs but which may extend to ₹ 25 lakhs.  Every officer of the company who is in default shall be punishable with fine which shall not be less than ₹ 1 lakh but which may extend to ₹ 5 lakhs.