TaxTMI 
TaxTMI 
TaxTMI 
2020 (9) TMI 128
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....The said Company was taken over by M/s. Oracle Financial Services Software Limited, fourth respondent herein. These shares were allotted to the petitioner in the year 1992. 3. Over the years, bonus shares were issued and the petitioner was holding 3200 shares. The market value of the share as on date would be about 1.14 crores. It is also stated that after the petitioner's son passed away, the dividends which were not received and as on date, unclaimed dividends worth Rs. 29,92,000/-. It is stated by the petitioner that Section 124 (6) of the Companies Act, which deals with unclaimed dividends provides that all the shares in respect of which dividends have not been claimed for seven consecutive years or more than 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. Proviso to sub-Section 6 of Section 124 states that claimant of the shares shall be entitled to claim the transfer of shares from the Investor Education and Protection Fund in accordance with such procedure and on submission of such documents as may be prescribed. 4. Section 124 of the Companies Act, 2013, read....
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....e 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. [Explanation.-For the removal of doubts, it is hereby clarified that in case any dividend is paid or claimed for any year during the said period of seven consecutive years, the share shall not be transferred to Investor Education and Protection Fund.] (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." 5. In exercise of powers conferred under sub-Section 1, 2, 3, 4, 8, 9, 10 and 11 of Section 125 and sub-Section 6 of 124 r/w. Section 469 of the Companies Act, the Central Government brought out the Investor....
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....ading 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 3within 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 intimation, the depository shall effect the transfer of shares in favour of DEMAT account of the Authority. (d)For the purposes o....
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....ot be transferred or dealt with in any manner whatsoever except for the purposes of transferring the shares back to the claimant as and when he approaches the Authority or in accordance with sub- rule (10) and (11). (10) If the company is getting delisted, the Authority shall surrender shares on behalf of the shareholders in accordance with the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 and the proceeds realised shall be credited to the Fund and a separate ledger account shall be maintained for such proceeds. (11) In case the company whose shares or securities are held by the Authority is being wound up, the Authority may surrender the securities to receive the amount entitled on behalf of the security holder and credit the amount to the Fund and a separate ledger account shall be maintained for such proceeds. (12) Any further dividend received on such shares shall be credited to the Fund and a separate ledger account shall be maintained for such proceeds. (13)Any amount required to be credited by the companies to the Fund as provided under sub-rules (10), (11) and sub-rule (12) shall be remitted into the specified account of the ....
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....ns of any officer appointed as Deputy Nodal Officer: Provided also that in case a company fails to appoint Nodal Officer, every director of the company shall be deemed to be nodal officer and be liable for any failure to comply with requirement of these rules. (2B)The details of the Nodal Officer and Deputy Nodal Officer duly indicating his or her designation, postal address, telephone and mobile number and company authorized e-mail ID shall be communicated to the Investor Education and Protection Fund Authority in Form No. IEPF-2within fifteen days from the date of publication of these rules and the company shall display the name of Nodal Officer and his e-mail ID on its website: Provided that any change in the Nodal Officer or his details shall be communicated to the Authority through Form No. IEPF-2within seven days of such change along with board resolution thereof. (3)The company shall, within thirty days from the date of receipt of claim, send an online verification report to the Authority after verification of details in Form No. IEPF-5 in the format specified by the Authority along with all the documents submitted by the claimant and shall attach the scanned copy of....
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....ithin fifteen days from the date of receipt of claim, send a verification report to the Authority in the format specified by the Authority along with all the documents submitted by the claimant. (4) After verification of the entitlement of the claimant- (a) to the amount claimed, the Authority and then Drawing and Disbursement Officer of the Authority shall present a bill to the Pay and Accounts Office for e- payment as per the guidelines, (b) to the shares claimed, the Authority shall issue a refund sanction order with the approval of the Competent Authority and shall credit the shares to the DEMAT account of the claimant to the extent of the claimant's entitlement. (5) The Authority shall, in its records, cause a note to be made of all the payments made under sub-rule (4). (6) An application received for refund of any claim under this rule duly verified by the concerned company shall be disposed off by the Authority within sixty days from the date of receipt of the verification report from the company, complete in all respects and any delay beyond sixty days shall be recorded in writing specifying the reasons for the delay and the same shall be communicated to the claim....
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.... verify all requisite documents required for registering transfer or transmission and shall issue letter to the claimant indicating his entitlement to the said security and furnish a copy of the same to the Authority while verifying the claim of such claimant through its e-verification report. Provided that. the authority shall dispose such request of transfer or transmission based on the e-verification report of the company subject to verification of such request. (10) ........ (11) The company shall be liable under all circumstances whatsoever to indemnify the Authority in case of any dispute or lawsuit that may be initiated due to any incongruity or inconsistency or disparity in the verification report or otherwise and the Authority shall not be liable to indemnify the security holder or Company for any liability arising out of any discrepancy in verification report submitted etc., leading to any litigation or complaint arising thereof. (b)Any fraudulent claim by the claimant shall be deemed to be fraud within the meaning of section 447 of the Act and the claimant shall be liable accordingly. (c)If any person deceitfully personates an owner of any security or of any s....
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....of Article 14, 21 and 300 A of the Constitution of India. 10. It is contended that it is well settled that before a person is divested of his rights in any property and affected person ought to be heard. Taking away the right of a shareholder even without affording a hearing, cannot be sustained and such law which permits such a procedure of divesting property is unsustainable and deserves to be struck down. 11. It is also contended by the learned counsel for the petitioner that Rules 6 and 7 of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, is so cumbersome that it virtually makes it impossible to comply with the procedure. It is contended that Rules 6 and 7 in as much as it relates to transfer of shares along with the unclaimed dividend is patently illegal and arbitrary in as much as the said rules render the transfer of shares to IEPF as transmission thereby divesting the shareholder and his legal heirs from their title to the said share. 12. It is further contended that Rule 7 elaborates the procedure on claiming shares transferred to Investor Education and Protection Fund account. Sub-Rule 8 read with sub-Rule 1 in....
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....ist of documents to be adduced for transmission of shares to the legal heirs. However, the Rules which are procedural in nature, have gone beyond the scope of the Act and had mandated the legal heirs to produce additional documents which are never prescribed in the Act. In as much as Section 124 (6) and the corresponding Rule 6 and 7 make it mandatory that the shares in relation to which the unclaimed dividend shall be transferred to IEPF, the same is arbitrary and illegal as the shareholder is divested of his title to the shares. 17. Heard Mr.M.Sricharan Rangarajan, learned counsel for the petitioner and Ms.R.Durga Rani, Central Government Standing Counsel for the respondents 1 and 2. 18. Mr.Sricharan Rangarajan, learned counsel for the petitioner, would submit that there is no rationale behind Section 124(6) of the Act which provides for transfer of shares along with dividend remaining unpaid or unclaimed for a period of 7 years from the Unpaid Dividend account of the company to the Investors Education and Protection Fund (IEPF). He would submit that the erstwhile Companies Act, 1956 did not have any provision which provided for transfer of shares along with unpaid/unclaimed di....
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....al expenditure to open DEMAT accounts in order to claim back their own shares. He would state that even though some companies are not mandated to keep their shares in DEMAT form, due to the transfer of shares to IEPF, the companies are forced to incur high expenditure for the conversion of physical shares to DEMAT and to subsequently transfer the same to IEPF's DEMAT Account. 21. He would submit that Rule 7 originally provided that in case of claimants being legal heirs or representatives of the deceased claimant, they ought to complete the transmission process alone in order to obtain refund of shares and the unpaid/unclaimed dividend. However, after the amendment in 2019, the process of completion of transmission has been completely done away with and the legal heirs/representatives are forced to undergo an arduous procedure where they are mandated to provide a Succession Certificate/Probate/Letter of Administration in addition to other documents as per Schedule II in case the value of securities are above Rs. 2,00,000/-. He would state that in addition to the above, if the securities held in physical mode are lost, as per Schedule III, the claimant also ought to provide a suret....
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.... was not aware even about the existence of the shares until recently on 2019. Since the shares were acquired by her son who died on 1993 in Oman, the petitioner had no way of knowing the shares on her own. Therefore, the shares were dormant for more than 7 years and in such a case, the shares are also unreasonably transferred to IEPF where the shareholder had actually died and the claimants were unaware of their existence. 24. Mr.Sricharan Rangarajan, learned counsel for the petitioner, places reliance on the judgment of the Hon'ble Supreme Court in K.T. Plantation (P) Ltd. v. State of Karnataka, (2011) 9 SCC 1, paras 190,191 & 2019), for the proposition that the transfer of shares/securities along with the unpaid dividend to IEPF is violative of Article 300A of the Constitution of India, not having followed the twin tests of compensation and public purpose. No public purpose is served in transferring the shares of a person to IEPF merely because dividends had not been claimed with respect to such shares, more particularly when the rationale behind the introduction of this concept has not been elaborated by the legislature and no reason till date has been adduced by the Legisl....
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....e in the statute provisions to the effect that declaration of dividend out of reserves could be made only in accordance with the rules to be prescribed by the Central Government or in special cases with the previous approval of the Government. It is also proposed to make it obligatory for companies to transfer the total amount which is to be distributed to shareholders as dividend in any year to a special account to be opened by the Company in any Scheduled Bank, within seven days from the date of the declaration. This is intended to prevent companies from declaring dividends when no profits in the shape of liquid funds are readily available. It has also been observed that very large amounts declared as dividends to shareholders by companies lie unclaimed or undistributed for several years. Hence it is proposed that such amounts lying unpaid for a period of three years should be transferred by the company to the general revenue account of the Central Government. In this way the possibility of the misuse of the money due to shareholders by management is avoided while the Central Government empowered to pay individual claimants as and when the claims are preferred. It is also propose....
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.... under sub-section (1) of Section 205-C. 205-C. Establishment of Investor Education and Protection Fund.-(1) The Central Government shall establish a fund to be called the Investor Education and Protection Fund (hereafter in this section referred to as the "Fund"). (2) There shall be credited to the Fund the following amounts, namely :- (a) amounts in the unpaid dividend accounts of companies; (b) the application moneys received by companies for allotment of any securities and due for refund; (c) matured deposits with companies; (d) matured debentures with companies; (e) the interest accrued on the amounts referred to in clauses (a) to (d); (f) grants and donations given to the Fund by the Central Government, State Governments, companies or any other institutions for the purposes of the Fund; and (g) the interest or other income received out of the investments made from the Fund: Provided that no such amounts referred to in clauses (a) to(d) shall form part of the Fund unless such amounts have remained unclaimed and unpaid for a period of seven years from the date they became due for payment. Explanation.-For the removal of doubts, it is hereby de....
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....to recover dividend in respect of his forgotten investments was curtailed. A shareholder could only recover dividend for upto 7 years, from the date on which he made an application to the company. 35. The vires of Section 205-C were challenged before the Delhi High Court in case Titled Nivedita Sharma Versus The Industrial Credit & Investment Corporation Of India & Ors, W.P. (C) No. 10157 of 2009. The Delhi High Court vide judgement dated 07.07.2011 dismissed the Challenge to Section 205-C, and held as under: "Section 205 C is a salutary and virtuous provision. It has been enacted to ensure that a company does not unjustifiably and unduly enrich themselves, as the depositors have failed to stake claim and have not been paid for a period of seven years from the date the amount became due. The word "unclaimed" used in the proviso to Section 205 C (2) clarifies that in case a claim is made within a period of seven years from the date amount became due and payable; the money shall not be transferred to the said fund. Thus, if a person makes a claim within a period of seven years, Section 205 C will not apply. Period of seven years is substantially long. A depositor or a person deali....
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....etition, bearing SLP (CC) No. 19616 of 2011 was preferred against this Judgement before the Hon'ble Supreme Court of India. On 02.01.2012, the Petition was dismissed as withdrawn with the liberty to approach the appropriate forum, once again. 37. Consequently, W.P. (C) No.1098 of 2012, titled Nivedita Sharma Versus Ministry Of Corporate Affairs & Ors, was preferred before the Delhi High Court. This Petition too was dismissed vide Judgement and order dated 20.04.2012. 38. Thus, the vires of Section 205-C, was upheld and the creation of a period of limitation, in respect of the right of a shareholder to claim dividend was deemed to be constitutionally valid. 39. Subsequently, The Companies Act, 1956 was repealed by the Companies Act, 2013. Consequently, sections 205-A, 205-B and 205-C all were replaced by Sections 124 and 125 of the New Act. Section 124 has been quoted in an earlier portion of the judgment and Section 125 reads as under:- "125. Investor Education and Protection Fund.-(1) The Central Government shall establish a Fund to be called the Investor Education and Protection Fund (herein referred to as the Fund). (2) There shall be credited to the Fund- (a) the amo....
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....rgement; (d) reimbursement of legal expenses incurred in pursuing class action suits under Sections 37 and 245 by members, debenture- holders or depositors as may be sanctioned by the Tribunal; and (e) any other purpose incidental thereto, in accordance with such rules as may be prescribed: Provided that the person whose amounts referred to in clauses (a) to (d) of sub-section (2) of Section 205-C transferred to Investor Education and Protection Fund, after the expiry of the period of seven years as per provisions of the Companies Act, 1956 (1 of 1956), shall be entitled to get refund out of the Fund in respect of such claims in accordance with rules made under this section. Explanation.-The disgorged amount refers to the amount received through disgorgement or disposal of securities. (4) Any person claiming to be entitled to the amount referred in sub-section (2) may apply to the authority constituted under sub- section (5) for the payment of the money claimed. (5) The Central Government shall constitute, by notification, an authority for administration of the Fund consisting of a chairperson and such other members, not exceeding seven and a chief executive officer,....
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....)(b), all shares in accordance with Section 124(6) were to be transferred to the IEPF. 43. The present Petition seeks to challenge, Section 124(6) of the 2013 Act, and the rules made thereunder. It is the case of the Petitioner, that the provisions related to the transfer of shares to the IEPF, i.e. 124(6), and the rules made thereunder, deprive a person of their right to property and are violative of Article 300-A of the Constitution of India. It is further the case of the Petitioner that the provision and the rules made thereunder, are onerous and are manifestly arbitrary. 44. Article 300-A, is extracted below. "300-A. Persons not to be deprived of property save by authority of law.-No person shall be deprived of his property save by authority of law." 45. It is settled law that Article 300-A ensures that no person shall be deprived of their property, except in accordance with law. The protection offered under this Article ensures that an executive fiat cannot result in the deprivation of property, and that law must be made by the appropriate legislature, to deprive a person of their property. 46. In the case of Jilubhai Nanbhai Khachar v. State of Gujarat, 1995 Supp (1) SC....
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....ies on the strength of a legislation. Further, it was also argued that the twin requirements of "public purpose" and "compensation" in case of deprivation of property are inherent and essential elements or ingredients, or "inseparable concomitants" of the power of eminent domain and, therefore, of List III Entry 42, as well and, hence, would apply when the validity of a statute is in question." 48. Thus, Article 300A, is attracted to those situations where the property of a person is acquired only by an executive fiat, and not on the basis of any law, validly made. It is the case of the Petitioners that the impugned provisions deprive them of their property, and are violative of Article 300-A of the Constitution of India. This argument is liable to be rejected because there is no actual deprivation of property taking place. 49. There is no doubt that as a result of the impugned provisions, the shares on which dividend is unclaimed for more than 7 years are to be transferred to the IEPF, but that does not amount to deprivation of property.This is for two reasons. Firstly, under Section 124(6), there is no statutory vesting of the shares so transferred to the IEPF. Section 124(6), ....
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....issue bonus shares or add anything prohibited under Section 126. As far as the operationalisation of this provision goes, the Rules, especially the first and second amendments had the effect of giving companies adequate time to notify and comply with the three month public notice period to their shareholders about the event of transfer. The Court also notices that the transfer of such shares or classes of shares is not a one-time measure but an ongoing event given the obligation of each company to identity such shares after the holding of every AGM." [Emphasis Supplied] 51. Even if we are to accept the argument of the Petitioner that by the transfer of shares under 124(6), they are being deprived of their property, such deprivation would be in accordance with law, as a result of law made by Parliament, and not as a result of an executive fiat. 52. The other argument advanced by the Petitioner is that the impugned provisions being onerous are manifestly arbitrary, and are liable to be struck down under Article 14 of the Constitution of India. It is a settled principle of law that a law made by Parliament or the Legislature, can be struck down, on the ground of being manifestly ....
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....ng principle. Also, when something is done which is excessive and disproportionate, such legislation would be manifestly arbitrary. We are, therefore, of the view that arbitrariness in the sense of manifest arbitrariness as pointed out by us above would apply to negate legislation as well under Article 14. " 53. The decision in Shayara Bano, holds that legislation or state action which is manifestly arbitrary would have elements of caprice and irrationality and would be characterized by the lack of an adequately determining principle. An "adequately determining principle" is a principle which is in consonance with constitutional values. With respect to criminal legislation, the principle which determines the "act" that is criminalized as well as the persons who may be held criminally culpable, must be tested on the anvil of constitutionality. The judgment of the Hon'ble Supreme Court in Shayara Banu (supra) has been consistently quoted with approval in a number of judgments. 54. Thus, the position of law that, is that it is open for the courts to quash/strike down legislation on the grounds that it is manifestly arbitrary. In order to prove that a legislation is manifestly ar....