Unclaimed shares and dividends- Refunds to be firms’ mandate

The government is planning to take a host of steps to expedite the refund of unclaimed shares and dividends to the rightful parties. It is likely to be entrust the task of processing the refunds with the companies concerned, which is currently the responsibility of the Investor Education and Protection Fund Authority (IEPFA).

At present, the total number of unclaimed shares lying with the IEPFA is over 1.1 billion, valued about Rs 1 trillion; and the total value of unclaimed dividends stands at Rs 5,700 crore.

The IEPFA has issued a discussion paper inviting comments on expediting the refund process.

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The moves comes close on the heels of finance and corporate affairs minister Nirmala Sitharaman’s call for a faster processing of unclaimed funds with demat accounts.

The paper issued on March 14 said: “In order to ease the process of refund, it is being explored that the process of claim and refund will be done based upon the verification of the respective companies.”

“The Authority shall, based upon the approval of the company, refund the shares and the amount, as the case may be, to the respective company for further refunding it to the rightful claimant,” it said.

The need to make the companies liable for issuing refunds hold significance as the current manpower of IEPFA is not well equipped to process refunds quickly, a senior official told FE.

“The new process is expected to be more time efficient and will facilitate the investors in seeking refunds as the investors will now be required to deal only with the companies instead of dealing with the IEPF Authority for the refund and disbursal,” said Manvinder Singh, Partner at JSA Advocates & Solicitors.

As per the draft rules, it is proposed that the concerned company will be liable for credit of shares and dividends to the investors after their entitlement and genuineness is established.

After a claim is filed by an investor in Form IEPF-5, the nodal officer will have to submit their verification report to the IEPF Authority within 30 days of filing. Upon receipt of such a report, the IEPF Authority will transfer the shares and dividends back to the company within 45 days. The concerned company will then be tasked to refund the shares and dividends to the claimants within 15 days.

“The online submission of claims, appointment of nodal officer, and electronic refund process will reduce paperwork and processing time,” said Manendra Singh, partner, Economic Laws Practice.

Ankit Garg, founder, Garg Law Chambers, said: “The Straight through Process (STP) will ease the burden of checking and verifying thousands of claims on the IEPF Authority as the refund will be processed based on the Verification Report of the company and the due diligence done by them.”

Till February-end, the IEPFA has refunded about 10.6 million shares to claimants and around  Rs 14 crore as dividends, according to sources.

The government had set up the IEPFA under Section 125 of the Companies Act, 2013 with the objective of promoting investor education, awareness, protection and to make refunds of claims to the investors. Section 124 of the Act says 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 to IEPFA.

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