Transfer of Shares to IEPF: Complete Compliance Workflow under Companies Act, 2013 and IEPF Rules, 2016

Equity shares linked to dividends that have remained unpaid or unclaimed for 7 continuous years or more are mandatorily required to be transferred to the demat account of the Investor Education and Protection Fund (IEPF) Authority.

This statutory framework serves two objectives:

  • Ensuring that idle, unclaimed investor assets are centrally protected and monitored; and
  • Providing a formal mechanism for rightful owners or their legal heirs to later recover such amounts and shares from IEPF.

The compliance process broadly involves:

  1. Tracing and reconciling unclaimed/unpaid dividends and the related shares.
  2. Communicating with the concerned shareholders.
  3. Effecting transfer of such shares to the IEPF Authority’s demat account through corporate action.
  4. Filing prescribed forms with the Ministry of Corporate Affairs (MCA) / IEPF Authority.
  5. Making statutory disclosures on the company’s website and in newspapers.

2. Statutory Provisions Governing Transfer

The legal regime for transfer of shares to IEPF is primarily set out in:

  • Section 124 and Section 125 of the Companies Act, 2013; and
  • Rule 5 and Rule 6 of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.

2.1 Section 124 – Unpaid Dividend Account

Section 124 requires companies to first transfer unpaid or unclaimed dividends to a separate Unpaid Dividend Account and thereafter, after the statutory period, move such amounts and related shares to the IEPF.

Relevant extracts (to be read as-is from the statute) include:

“(1) Where a dividend has been declared by a company but has not been paid or claimed within thirty days from the date of the declaration to any shareholder entitled to the payment of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days, transfer the total amount of dividend which remains unpaid or unclaimed to a special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account.”

“(5) Any money transferred to the Unpaid Dividend Account of a company in pursuance of this section 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 established under sub-section (1) of section 125 and the company shall send a statement in the prescribed form of the details of such transfer to the authority which administers the said Fund and that authority shall issue a receipt to the company as evidence of such transfer’’

“(6) 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 ‘’

2.2 Section 125 – Investor Education and Protection Fund

Section 125 establishes the IEPF and specifies how the Fund is to be used, as well as the entitlement of claimants to seek refund. Relevant extracts include:

“(1) The Central Government shall establish a Fund to be called the Investor Education and Protection Fund (herein referred to as the Fund).”

‘’(3) The Fund shall be utilised for–
(a) the refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon;
(b) promotion of investors education, awareness and protection;
(c) distribution of any disgorged amount among eligible and identifiable applicants for shares or debentures, shareholders, debenture-holders or depositors who have suffered losses due to wrong actions by any person, in accordance with the orders made by the Court which had ordered disgorgement;
(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 205C 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.’’

“(6) Any claimant of shares under sub-section (6) of section 124 or of amounts referred to in clause (a) or clause (b) of sub-section (3) shall be entitled to get refund out of the Fund in respect of such claims in accordance with rules made under this section.”

3. Pre-Conditions Before Initiating Transfer

Before a company can legally move shares to the IEPF demat account, the following groundwork is mandatory: