AI Drafter 
TaxTMI 
TaxTMI 
2017 (12) TMI 510
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....t (the Investor Education and Protection Fund, hereafter described as "the Fund") and ensure that officials transferring the shares are made responsible for due certification of compliance with the Rules. 2. Referring to Section 205A of the (repealed) Companies Act, 1956, it is submitted that previously, where companies were dealing with eventualities whereby unpaid dividends accrued with them, that provision compelled them (the companies) to designate a specific account as "Unpaid Dividend Account" (UDA) and transfer such monies into it. The UDA marked such amounts as separate and not belonging to or available with, such companies. The Act also provided for transfer of funds from UDA to the Fund if no payout were made for seven years. 3. It is submitted that the Companies Act, 2013 (hereafter "the 2013 Act") not only retains the feature with respect to transfer of amounts from the UDA of all companies to the Fund, but goes further, in that shares that yield dividends, which remain unpaid for over seven (7) years, would be transferred to the Fund, by virtue of operation of Section 124 (6). It is urged that this radical change would mean that if for some reason shareholders ar....
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....given, or is deemed to be provided, three months in advance, to the shareholders in the following manner: * Informing at the latest available address, the shareholder concerned regarding transfer of shares three months before the due date of transfer of shares; * Publishing a notice in the leading newspaper in English and regional language having wide circulation; and * Furnishing details of such shareholders and shares due for transfer on the company's website giving details. 7. Rule 6 also establishes a detailed procedure for transferring physical shares as well as where the shares are dealt with in a depository. It is also urged that an important aspect from the shareholder's point of view is that her or his voting rights on shares transferred to the Fund remains frozen until the rightful owner claims the shares. 8. The petitioner states, and in the course of hearing, learned counsel, Sh. R. Subramanian, submitted that the validity of Section 124(6) of the Companies Act, 2013 is not being questioned; yet, what is of concern is that the lack of clarity in the Rules and amendments by the Circulars issued by the Central Government, have resulted....
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....esting of shares would take place on 30.11.2017. Such notices are provided by publication in the website or notice in the public domain as late as in October barely giving the three-months mandated period. In this regard, the petition cites that its volunteers completed a sample survey to study compliance with the Rules, of 25 randomly chosen companies and that only four had set out details mandated or prescribed under the Act and Rules and that most of the other companies, instead of displaying the names and folio numbers on their websites, have obliged the shareholders to enter their names and folio numbers to check if their shares were transferred, wholly in violation of the Rules. It is urged that all these resulted in a hopeless situation for shareholders who, upon subsequent transfer of their shares, would be confronted with a herculean task of reclaiming them. 10. On the first date of hearing when the petition was listed, after it was received on transfer from the bench of Hon'ble the Acting Chief Justice, who did not wish to hear the matter, the Central Government was represented by the Additional Solicitor General (ASG) on advance notice. 11. With consent of learned ....
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.... that it was difficult for companies to comply with the Rules immediately, the first amendment was made on 28.02.2017. This also provided relief to a class of shareholders who might have in one go or more than one year have encashed dividend warrants within such seven years, such that their shares were not to be transferred. The second proviso to Rule 6(1) postponed the date of transfer to 31.03.2017. The second amendment extended the date of transfer to 31.10.2017 and further stated that the transfer of shares by the companies would be only transmission of shares. It was argued that the provisions of the Act are adequate with respect to deviancy in that Section 124(7) provides that if companies fail to comply with the requirements of the Section, they would be punishable with fine that would be not less than Rs.5 lakhs but which may extend to Rs.25 lakhs and every officer in default is punishable with fine that is not less than Rs.1 lakh but extendable upto Rs.5 lakhs. It is stated by ASG that in the event the Central Government notices any difficulty in the implementation of Section 124(6) or the Rules, it would step in and take suitable remedial action. 13. As is evident from....
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....ty shall issue a receipt to the company as evidence of such transfer. (6) All shares in respect of which unpaid or unclaimed dividend has been transferred under sub-section (5) shall also 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; Provided that any claimant of shares transferred above shall be entitled to claim the transfer of shares from Investor Education and Protection Fund in accordance with such procedure and on submission of such documents as may be prescribed: (7) If a company fails to comply with any of the requirements of this section, the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees." 14. The Fund is created by Section 125. - it is established by the Central Government; the various amounts to be credited to it are created in Section 125(2). Section 125(3) states that the Fund would be ....
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....sion of such documents such as may be prescribed." In the opinion of this Court, the net result of Section 124(6) is that whilst it introduces a new regime of not merely transferring the amounts lying in the UDA, but also directs the transfer of shares which yield unclaimed dividend for seven years or more; it also enables the provision of a mechanism for reclamation of such shares. This aspect is to be necessarily factored in to understand the mechanics of the transfer sought to be achieved through the Rules. Rule 6 underwent changes twice. Quite correctly, the petitioner points out that the original Rule 6 had allowed some uncertainty and confusion. The said Rule, to the extent it is relevant, reads as follows: "6. Manner of transfer of shares under sub-section (6) of section 124 to the Fund.- (1) The shares shall be credited to an IEPF suspense account (on the name of the company) with one of the depository participants as may be identified by the Authority within a period of thirty days of such shares becoming due to be transferred to the Fund: Provided that, in case the beneficial owner has encashed any dividend warrant during the last seven years, such share....
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....ch shareholder shall be issued and it shall be stated on the face of it and be recorded in the register maintained for the purpose, that the duplicate certificate is "Issued in lieu of share certificate No..... for purpose of transfer to IEPF" and the word "duplicate" shall be stamped or punched in bold letters across the face of the share certificate; (iii) particulars of every share certificate issued as above shall be entered forthwith in a register of renewed and duplicate share certificates maintained in Form No. SH 2 as specified in the Companies (Share Capital and Debentures) Rules, 2014; (iv) after issue of duplicate share certificates, the Company Secretary or the person authorised by the Board, shall sign the necessary Form No. SH 4 i.e., securities transfer Form as specified in the Companies (Share Capital and Debentures) Rules, 2014, for transferring the shares in favour of the Fund; (v) on receipt of the duly filled transfer forms along with the duplicate share certificates, the Board or its Committee shall approve the transfer and thereafter the transfer of shares shall be effected in favour of the Fund in the records of the company. ....
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....the due date of transfer of shares and also simultaneously publish a notice in the leading newspaper in English and regional language having wide circulation informing the concerned that the names of such shareholders and their folio number or DP ID - Client ID are available on their website duly mentioning the website address. (b) In case, where there is a specific order of Court or Tribunal or statutory Authority restraining any transfer of such shares and payment of dividend or where such shares are pledged or hypothecated under the provisions of the Depositories Act, 1996 or shares already been transferred under sub-rule (1) above, the company shall not transfer such shares to the Fund: Provided that the company shall furnish details of such shares and unpaid dividend to the Authority in Form No. IEPF 3 within thirty days from the end of financial year. (c) For the purposes of effecting the transfer, where the shares are dealt with in a depository- (i) the Company shall inform the depository by way of corporate action, where the shareholders have their accounts for transfer in favour of the Authority. (ii) on receipt of such intimati....
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....n years provided under sub-section (5) of section 124 has been completed or being completed during the period from 7th September, 2016 to 31st October, 2017, the due date of transfer of such shares shall be deemed to be 31st October, 2017." (b) after the second proviso, the following proviso shall be inserted, namely:- "Provided further that transfer of shares by the companies to the Fund shall be deemed to be transmission of shares and the procedure to be followed for transmission of shares shall be followed by the companies while transferring the shares to the fund.". 18. In Rule 6(3), clause (d) was substituted in the following terms: "(II) in sub-rule(3), for clause (d), the following clause shall be substituted, namely;- '(d) For the purposes of effecting the transfer shares held in physical form- (i) the Company Secretary or the person authorised by the Board shall make an application, on behalf of the concerned shareholder, to the company, for issue of a new share certificate; (ii) on receipt of the application under clause (a), a new share certificate for each such shareholder shall be issued and it shall be stated on....
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....ally by the second amendment to the Rules, in the opinion of the Court, have lent some uncertainty. The samples of advertisements issued by the various companies after the Rules were notified on 05.09.2016 indicated that the three month period provided was apparently not adhered to, at least in the case of five of them. The notices were published in newspapers etc. in the first week or mid-November with the further intimation that the date of transfer would be 30.11.2017. The petitioner has relied upon and produced the circular issued by the Central Ministry of Corporate Affairs on 16.10.2017, which in the relevant part reads as follows: "No.11/06/2017-IEPF Government of India Ministry of Corporate Affairs 5th Floor, 'A‟ Wing Shastri Bhawan, Dr. R.P. Road, New Delhi-110001 Dated : 16.10.2017 To All Stakeholders Nodal Officers (IEPF) of Concerned Companies All Regional Directors and Registrar of Companies MD & CEO NSDL MD & CEO NSDL Subject: Transfer of Shares to IEPF Authority Pursuant to second proviso to Rule 6 of Investor Education and Protection Fund Authority (A....
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.... Sub-rule (10), (11) and (12) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, shall be transferred by coampnies to bank account openined by the Authority with Punjab National Bank, Sansad Marg, New Delhi, which has been linked to demat accounts mentioned at para 2 above." 21. The petitioner's complaint is that even when the date of vesting is said to be 31.10.2017, the authorities continued to indicate changes with the result that companies would not be accountable for the mandate of Rule 6(1), i.e. three months notice. This Court is of the opinion that Rule 6(3) has not undergone any change. Its clause (a) retains its original character which means that every company had to necessary give three months clear notice to all concerned about the date of transfer. Undoubtedly, the absence of any date in the original Rules might have led to some uncertainty, even confusion. However, the first amendment clarified that and fixed the date as 31.05.2017. It also gave some manner of relief to those who had approached the companies or encashed dividends in the interregnum between 07.09.2016 and 31.05.2017. The same spirit was continu....