REPORTING OF UNCLAIMED DIVIDEND AND DEPOSITS TO IEPF AND ROC

Investor Education and Protection Fund (IEPF)

Financial awareness plays a very important role in every individual’s life, whether he is salaried individual or an individual who has its own business.  Having Knowledge of investing in financial markets How to invest, where to invest, how much to invest etc. is like a clumsy process for every Indian individual. As there are various opportunities are available in the market, we just need to consider them and invest wisely in the market.

Being aware about investing helps the investors to fully appreciate opportunities and associated risks, take informed decisions, understand the intricacies of financial markets and participate actively in the economic growth of the Country by converting savings into investments.

Keeping all this in mind, the Ministry of Corporate Affairs, Government of India established the Investor Education and Protection Fund (IEPF) under Section 205C of the Companies Act, (1956) with an aim to generate more awareness among the investors and thus protect them. The Fund is administered as per the provisions of Investor Education and Protection Fund (awareness and protection of investors) Rules, 2001.

The fund committee includes members from Reserve Bank of India, Securities and Exchange Board of India and other experts from the field of investors' education and protection.

ROLE OF IEPF

IEPF has been actively:

• Bringing out education programmes through media that are related to investors' education, awareness and protection.
• Imparting information on investors' awareness by organising Seminars and Symposia.
• Co-ordinating with voluntary associations and institutions such as Prime Investors Protection Association and League, Consumer Unity & Trust Society to organise more and more Investor Education and Protection activities.
• Providing institutional arrangements and financial infrastructure to organisations that are involved in investors' awareness, education and protection.

Apart from this, the IEPF also furnishes important information on key aspects relating to investment options such as Role of Capital Market, IPO Investing, Mutual Fund Investing, Stock Trading, Depository Account, Debt Market etc., thus making it easy for a lay investor to understand the meaning and intricacies of the terminology and procedures of the financial markets.

AMOUNT CREDITED TO THE FUND

The following amounts shall be credited to the fund as prescribed under the Companies Act, 1956 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 declared that no claims shall lie against the Fund or the company in respect of individual amounts which were unclaimed and unpaid for a period of seven years from the dates that they first became due for payment and no payment shall be made in respect of any such claims.

FILING OF INFORMATION REGARDING UNPAID AND UNCLAIMED AMOUNTS

In order to create more awareness about the unclaimed dividend and deposits lying with Companies, the Ministry of Corporate Affairs has passed a notification dated 10^th May, 2012 termed as Investor Education and Protection Fund (Uploading of information regarding unpaid and unclaimed amounts lying with companies) Rules, 2012.

This has mandated every company (including Non-Banking Financial Companies and Residuary Non-Banking Companies) to file eForm 5INV containing the information of unclaimed and unpaid amounts as referred to in subsection (2) of section 205C of the Companies Act, 1956. In this context, “Every Company” mean those companies who have declared dividend for past several years. It covers mostly listed companies whose shareholders are not able to claim their dividend. Through this process, an investor can check their details of unclaimed dividend and deposits lying with the Company on the IEPF website itself.

This information is required to be filed every year within a period of 90 days after the holding of Annual General Meeting or the date on which it should have been held as per the provisions of section 166 of the Act, and every year thereafter till completion of the seven years’ period.

For financial year ended on 31st March 2011, the eForm should be filed latest by 31^st July 2012. In this case, the Companies have to file all the information of unclaimed dividend for last previous seven years in which the companies had declared dividend.

The information is to be filed in Form 5- INV which shall contain investor wise details of unclaimed and unpaid amounts in respect of dividends, debentures, deposits, etc. The details of unclaimed and unpaid amounts shall need to be provided as on the Annual General Meeting (AGM) date. This form is to be filed annually within 90 days from the date of AGM. The form can be downloaded from the IEPF portal of the Ministry (http://www.iepf.gov.in/).

After the Form 5- INV is filled and uploaded on the IEPF portal, you are required to provide the investor wise details of unclaimed and unpaid amount.

Once the excel file(s) has been uploaded, user is required to confirm the upload of the same on the IEPF portal within 15 days of upload of the eForm 5-INV.

Please note that the filing of Form 5-INV shall be treated as complete only after the excel file(s) are uploaded and confirmed.

Ensure that the correct details are uploaded on the IEPF portal as excel file once uploaded cannot be deleted. To modify the details, an excel file with the same file name (as of the original file) shall have to be uploaded which shall replace the original file. Please note that no excel file can be modified after the upload has been confirmed. After confirmation, the details shall be processed and shall not be allowed to be modified. In case no excel file is uploaded within the prescribed time limit, the filing of Form 5-INV shall be treated as Defective and the form shall be rejected.

Clarifications from MCA:

Cut-off Date for the calculation of amount unpaid and claimed undividend This Rule requires that every company has to file a statement of unclaimed and unpaid dividend, within 90 days after the holding of Annual General Meeting, however the date as on which such amount has to be calculated was not clearly specified. But it has now been made clear that the amount has to be calculated as on the date of Annual General Meeting or the due date on which the meeting should have been held as per Section 166 of the Companies Act, 1956.

Calculation of amount of unpaid dividend for the form to be filed with respect to Financial Year ending on March 31, 2011 Proviso to Rule 3, states that companies need to file the form for financial year ending on March 31, 2011 also till July 31, 2012. However, the cut-off date for recognizing the amount to be filed for the financial year ending 31st March 2011 was not clear. But the clarification note has clarified that for financial year ending March 31, 2011, the statement of amount to be filed shall be the total balance of unclaimed and unpaid dividend and matured deposits appearing in the balance sheet as on March 31, 2011 to be updated further till the date of Annual General Meeting held for the financial year ending March 31, 2011.

Whether statement of amount of unpaid dividend filed for the respective financial year shall include the amount of unpaid dividend declared in the recently concluded Annual General Meeting. The due date of submission of Form 5 INV relates to the date of Annual General Meeting, i.e. within 90 days from the date of the Annual General Meeting, and therefore in this respect there was a doubt whether the amount of dividend which becomes unpaid, after it has been declared in the recently concluded Annual General Meeting is also required to be included in the statement to be filed after the conclusion of this meeting. It has now been clarified that the dividend remaining unpaid which was declared in the recently concluded Annual General Meeting and becoming unpaid after the expiry of 30 days, shall not be included in the form to be filed within 90 days from the date of Annual General Meeting. 

Recognition of the amount of Unpaid Dividend: The dividend which has been declared on 30th September, 2012 and becoming unpaid on 30th October, 2012 shall not be included in Form 5INV to be filed on or before 29th December 2012, and will be included in the form filed for the next financial year ending on 31st March 2013, since the cut-off date is the date of Annual General Meeting and the dividend declared in the recently concluded Annual General Meeting becomes unpaid after the meeting.

ARTICLE ON IPO NORMS ISSUED BY IRDA FOR INSURANCE COMPANIES

The much awaited IPO guidelines for Insurance Companies has been notified by IRDA (Insurance Regulatory Development Authority) in the Official Gazette of India.

Earlier, Insurance watchdog, IRDA has said that the intial public offer guidelines for life insurance companies will be out by June end. In October last year, market regulator Sebi had approved life insurance companies to issue IPOs.

Insurance regulator IRDA came out with guidelines allowing life insurance companies to raise funds from the public through IPOs. The insurance companies will have to take prior written approval before approaching SEBI for public issue of shares and subsequent issues thereafter. The application for the approval of the authority shall be filed in Form A as prescribed in these regulations. The validity of approval given by the authority is of one year from the date of issue of approval letter subject to following conditions:

i) Compliant with regulatory framework and disclosure requirements.
ii) Compliant with Corporate Governance guidelines.
iii) Maintenance of Solvency Margin for six preceding quarters from the quarter immediately prior to the date of filing of application.
iv) It may not be detrimental to the interests of the policyholders.
v) It may be in the interest of Insurance business in the country.

The Company will also have to file its DRHP (Draft Red Herring Prospectus) within this period with SEBI.

The Insurance Regulatory and Development Authority (IRDA), however, will decide the size of the public issue. As per the guidelines, promoters of the insurance companies will also be allowed to issue of capital under ICDR Regulations and to offload their stake in the company. The shares which are issued or through divestment must be fully paid up equity shares.

The insurance companies proposing their capital from public must be in existence for more than 10 years from the date of Commencement of business in the industry. After the insurance sector opened up in 2000, only 23 private companies have entered the life insurance business. While few companies would immediately become eligible for IPOs, the remaining would have to wait for completion of 10 years of operations.

IRDA would prescribe "the extent to which promoters shall dilute their respective holding, the maximum subscription which could be allotted to any foreign investors, lock-in period for the promoters from the date of allotment of shares and the disclosures in the Prospectus/Offer Document, in addition to such disclosure as may be prescribed by SEBI
The insurance companies, which will become eligible to come out with the initial public offerings (IPOs), include SBI Life Insurance, ICICI Prudential, Bajaj Allianz, Reliance Life etc. Currently, most of the 22 private life insurers and 17 non-life players have foreign partners. The Insurance Act caps foreign direct investment at 26%.

TRANSFER OF SHARES AS PER COMPANIES ACT, 1956

Meaning of transfer of share

The word 'transfer of share' is an act of the parties (transferor and transferee) by which title to share is transferred from one person to another. Transfer of share may also take place succession.

Transfer Deed is compulsory for share transfer

In Companies Act, 1956 transfer of share is governed by Section 108. As per section 108 registration of transfer of shares is possible only if a proper transfer deed in Form 7B duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company, along with the share certificate.

Kindly note where share certificate is not in existence, attach letter of allotment with of the share transfer deed.

Rate of Stamp duty

Stamp duty for transfer of shares is 25 paise for every Rs. 100 or part thereof of the value of shares as per Notification No. SO 130(E), dated 28-01-2004 issued by the Ministry of Finance, Department of Revenue, New Delhi.

Transfer procedure not applicable under the depositories system

Section 108(3) provides that the provisions of section 108 shall not apply to transfer of securities under the depositories system. (Both the Transferor and Transferee are entered as beneficial owner).

Validity of transfer deed

In the case of listed company, at any time before the date on which the register of members is closed, in accordance with law, for the first time after the date of the presentation of the prescribed form to the prescribed authority under clause (a) of section 108(1A) or within twelve months from the date of such presentation, whichever is later.  

In any other case, within two months from the date of such presentation.

SHARES TRANSFER IN A PRIVATE COMPANY

Restriction in Private company on the right to transfer its shares [Section 3(1)(iii)]

Section 3(1)(iii)(a) of the Companies Act, 1956 provides that the Articles of a private company shall restrict the right to transfer the company's shares. Normally 100% shareholding of a private company may be owned by a family or other private group.

Cases where Restriction on transfer not applicable

Restriction upon transfer of shares in private company not applicable in the following cases:—

(i) on the right of a member to transfer his/her shares to his/her representative(s).

(ii) in the event of death of a shareholder, legal representatives may require the registration of share in his/her name.

Procedure for transfer of shares of private company

Transfer of shares in a private company is governed by AOA. Some steps followed by a private company to give effect to the transfer of shares are as follows:—

(i) Transferor should give a notice in writing to the company for his intention to transfer his share.

(ii) The company in turn notify to other members as regards the availability of shares and the price at which such share would be available to them along with the time limit within which they should communicate their option to purchase shares on transfer.

(iii) Such price is generally determined by the directors or the auditors of the company.

If none of the members comes forward to purchase shares then the shares can be transferred to an outsider and the company will have no option, other than to accept the transfer.

Valuation of share for the purpose of transfer of shares of a private company

Normally Articles of a private company contain provisions in this regard and provides that the shares are to be sold at a fair price determined by directors or the company's auditors.

Transfer of shares in a public company

Section 111A(2) provides that the shares or debentures of a public company shall be freely transferable.

Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the Company Law Board/ Tribunal and it shall direct such company to register the transfer of shares.

Checklist to be followed for transfer of shares

(i) Arrange share transfer deed (Form 7B). It should be endorsed by the prescribed authority. This deed can also be used for the transfer of debenture.

(ii) Get the transfer deed duly executed both by the transferor and the transferee as desired by sections 108 and 109 of the Act and the Articles of Association.

(iii) The transfer deed should bear stamps according to the Indian Stamp Act and Stamp Duty Notification in force in the State concerned. The present rate of transfer of shares is 25 Paise for every one hundred rupees of the value of shares or part thereof.

(iv) Do not forget to cancel the stamps affixed on the transfer deed at the time or before signing of the transfer deed.

(v) The signatures of the transferor and the transferee in the share transfer deed must be witnessed by a person giving his signature, name and address.

(vi) Attach the relevant share or debenture certificate or allotment letter with the transfer deed and deliver the same to the company within the time limits.

(vii) Where the application is made by the transferor and relates to partly paid-up shares, the company has to give due notice of the amount due on shares/debentures to the transferee and the transferee shall raise objection, if any within two weeks from the date of receipt of the said notice.

(viii) If signed transfer deed has been lost, affix the same stamp on a written application. In such case, the Board may, if it thinks fit to do so, register the transfer on such terms of indemnity as it thinks fit.

EXTENSION OF VALIDITY OF TRANSFER DEED_PROCEDURE

In case the validity period of a share transfer deed has expired, the same can be extended by making an application in Form 7C to the ROC.

The fee for such application is Rs. 50 where the nominal value of the shares is upto Rs. 5,000 and the fee is Rs. 100 where the value exceeds Rs. 5000.

The application shall be made to the Registrar of Companies, where the registered office of the Company is situated or under whose jurisdiction the transferor or transferee resides. The Registrar on satisfaction of the cause shown in the application shall extend the validity for a period of 30 days from the date of approval by the Registrar. It should be noted that further extension will not be provided by the Registrar. Therefore, the transfer deed should be lodged with the company within the extended period only.

Difference in the signature of transferor

One of the reason for refusal of transfer of shares is the difference in the signature(s) of the transferor in the share transfer deeds with the specimen signatures available in the records of the company. To avoid this situation, it is advisable to provide an option to the members for furnishing fresh specimen signatures for the records of the company.

Remedy for refusal of transfer of Shares

Appeal against refusal to register transfer of shares

In the case of refusal, the transferee may appeal to the CLB/Tribunal against any refusal by the company to register the transfer or transmission. This appeal can also be preferred where there is delay on the part of the company to send notice of its refusal to register the transfer within the period of two months. [Section 111(2)].

Such appeal to the Company Law Board/Tribunal under section 111(2) of the Act shall be made within two months of the receipt of the notice of such refusal or, where no such notice has been sent by the company, within four months from the date on which the instrument of transfer, or the intimation of transmission, as the case may be, was delivered to the company. [Section 111(3)].

PROCEDURE FOR TRANSFER OF PARTLY PAID UP SHARES

Where the application is made by the transferor and relates to partly paid shares, the transfer shall not be registered, unless the company gives notice of the application to the transferee and the transferee makes no objection to the transfer within two weeks from the receipt of the notice. The notice to the transferee shall be deemed to have been duly given if it is dispatched by prepaid registered post to the transferee at the address given in the instrument of transfer, and shall be deemed to have been duly delivered at the time at which it would have been delivered in the ordinary course of post.

BUY BACK OF SHARES AS PER SECTION 77A OF COMPANIES ACT, 1956

The provisions regulating buy back of shares are contained in Section 77A, 77AA and 77B of the Companies Act,1956. These were inserted by the Companies (Amendment) Act,1999. The Securities and Exchange Board of India (SEBI) framed the SEBI(Buy Back of Securities) Regulations,1999 and the Department of Company Affairs framed the Private Limited Company and Unlisted Public company (Buy Back of Securities) rules,1999 pursuant to Section 77A(2)(f) and (g) respectively.

Objectives of Buy Back: Shares may be bought back by the company on account of one or more of the following reasons

i. To increase promoters holdingi

i. Increase earning per share

iii. Rationalise the capital structure by writing off capital not represented by available assets. 

iv. Support share value

v. To thwart takeover bid

vi. To pay surplus cash not required by business

Infact the best strategy to maintain the share price in a bear run is to buy back the shares from the open market at a premium over the prevailing market price.

Resources of Buy Back

A Company can purchase its own shares from 

(i) free reserves; Where a company purchases its own shares out of free reserves, then a sum equal to the nominal value of the share so purchased shall be transferred to the capital redemption reserve and details of such transfer shall be disclosed in the balance-sheet or

(ii) securities premium account; or 

(iii) proceeds of any shares or other specified securities. A Company cannot buyback its shares or other specified securities out of the proceeds of an earlier issue of the same kind of shares or specified securities.

Conditions of Buy Back

(a) The buy-back is authorised by the Articles of association of the Company;

(b) A special resolution has been passed in the general meeting of the company authorising the buy-back. In the case of a listed company, this approval is required by means of a postal ballot. Also, the shares for buy back should be free from lock in period/non transferability.The buy back can be made by a Board resolution If the quantity of buyback is or less than ten percent of the paid up capital and free reserves;

(c) The buy-back is of less than twenty-five per cent of the total paid-up capital and fee reserves of the company and that the buy-back of equity shares in any financial year shall not exceed twenty-five per cent of its total paid-up equity capital in that financial year;

(d) The ratio of the debt owed by the company is not more than twice the capital and its free reserves after such buy-back;

(e) There has been no default in any of the following

i. in repayment of deposit or interest payable thereon,ii. redemption of debentures, or preference shares or

iii. payment of dividend, if declared, to all shareholders within the stipulated time of 30 days from the date of declaration of dividend oriv. repayment of any term loan or interest payable thereon to any financial institution or bank;

(f) There has been no default in complying with the provisions of filing of Annual Return, Payment of Dividend, and form and contents of Annual Accounts;

(g) All the shares or other specified securities for buy-back are fully paid-up;

(h) The buy-back of the shares or other specified securities listed on any recognised stock exchange shall be in accordance with the regulations made by the Securities and Exchange Board of India in this behalf; and

(i) The buy-back in respect of shares or other specified securities of private and closely held companies is in accordance with the guidelines as may be prescribed.

Disclosures in the explanatory statement

The notice of the meeting at which special resolution is proposed to be passed shall be accompanied by an explanatory statement stating - 

(a) a full and complete disclosure of all material facts; 

(b) the necessity for the buy-back; 

(c) the class of security intended to be purchased under the buy-back; 

(d) the amount to be invested under the buy-back; and 

(e) the time-limit for completion of buy-back

Sources from where the shares will be purchased 

The securities can be bought back from 

(a) existing security-holders on a proportionate basis;

Buyback of shares may be made by a tender offer through a letter of offer from the holders of shares of the company or 

(b) the open market through(i). book building process;

(ii) stock exchanges or(c) odd lots, that is to say, where the lot of securities of a public company, whose shares are listed on a recognized stock exchange, is smaller than such marketable lot, as may be specified by the stock exchange; or

(d) purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.

Filing of Declaration of solvency

After the passing of resolution but before making buy-back, file with the Registrar and the Securities and Exchange Board of India a declaration of solvency in form 4A. The declaration must be verified by an affidavit to the effect that the Board has made a full inquiry into the affairs of the company as a result of which they have formed an opinion that it is capable of meeting its liabilities and will not be rendered insolvent within a period of one year of the date of declaration adopted by the Board, and signed by at least two directors of the company, one of whom shall be the managing director, if any: No declaration of solvency shall be filed with the Securities and Exchange Board of India by a company whose shares are not listed on any recognized stock exchange.

Register of securities bought back

After completion of buyback, a company shall maintain a register of the securities/shares so bought and enter therein the following particularsa. the consideration paid for the securities bought-back,

b. the date of cancellation of securities,c. the date of extinguishing and physically destroying of securities and 

d. such other particulars as may be prescribedWhere a company buys-back its own securities, it shall extinguish and physically destroy the securities so bought-back within seven days of the last date of completion of buy-back.

Issue of further shares after Buy back

Every buy-back shall be completed within twelve months from the date of passing the special resolution or Board resolution as the case may be.A company which has bought back any security cannot make any issue of the same kind of securities in any manner whether by way of public issue, rights issue up to six months from the date of completion of buy back.

Filing of return with the Regulator

A Company shall, after the completion of the buy-back file with the Registrar and the Securities and Exchange Board of India, a return in form 4 C containing such particulars relating to the buy-back within thirty days of such completion. No return shall be filed with the Securities and Exchange Board of India by an unlisted company.

Prohibition of Buy Back

A company shall not directly or indirectly purchase its own shares or other specified securities - 

(a) through any subsidiary company including its own subsidiary companies; or 

(b) through any investment company or group of investment companies; or

Procedure for buy back

a. Where a company proposes to buy back its shares, it shall, after passing of the special/Board resolution make a public announcement at least one English National Daily, one Hindi National daily and Regional Language Daily at the place where the registered office of the company is situated.

b. The public announcement shall specify a date, which shall be "specified date" for the purpose of determining the names of shareholders to whom the letter of offer has to be sent.

c. A public notice shall be given containing disclosures as specified in Schedule I of the SEBI regulations.

d. A draft letter of offer shall be filed with SEBI through a merchant Banker. The letter of offer shall then be dispatched to the members of the company.e. A copy of the Board resolution authorising the buy back shall be filed with the SEBI and stock exchanges.

f. The date of opening of the offer shall not be earlier than seven days or later than 30 days after the specified date

g. The buy back offer shall remain open for a period of not less than 15 days and not more than 30 days.

h. A company opting for buy back through the public offer or tender offer shall open an escrow Account.

Penalty

If a company makes default in complying with the provisions the company or any officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to fifty thousand rupees, or with both. The offences are, of course compoundable under Section 621A of the Companies Act,1956.