Section 125 - Investor Education and Protection Fund: The Companies Act, 2013
Updated: Apr 10
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Investor Education and Protection Fund or IEPF was initially a fund set up under Section 205C of the Companies Act, 1956. Now it is set up under Section 125 of the Companies Act, 2013. It is a fund set up to pool in all the dividends of the Asset Management Companies, matured deposits, share application interests or money, debentures, interests, etc. that are unclaimed for seven years. All the money collected from these sources has to be transferred to IEPF. Investors, who are trying to seek a refund for their unclaimed rewards can now do so from the Investor Protection and Education Fund (IEPF). The fund has been set up under the guidance of SEBI and the Ministry of Corporate Affairs India (MCA).
Why was IEPF introduced?
IEPF concept was introduced initially with the idea of using the investor’s money for their benefits such as investor’s education, and investor awareness program. Later in 2016, the government made it mandatory the transfer underlying shares on which dividends had not been claimed for the last seven consecutive years. This gave rise to ambiguities concerning the process of transferring the same to the government and certain other confusions among all the stakeholders. Therefore, this was amended by the MCA several times including the recent amendment, dated 14th August 2019 through which the process has been simplified.
Administration of IEPF
The IEPF is administered by the IEPF Authority consisting of a chairperson, a chief executive officer, and other members, not exceeding seven, appointed by the Central Government. The IEPF Authority administers the IEPF funds and maintains separate accounts and other relevant records relating to the funds as prescribed after consultation with the Comptroller and Auditor-General of India. The funds of the IEPF are the amount accumulated/credited to the IEPF as per the provisions of the Act.
The IEPF Authority will utilize and spend the money of the IEPF funds only for the purposes mentioned in the Act. The Comptroller and Auditor-General of India will audit the accounts of the IEPF. The IEPF Authority will forward the audited accounts with the audit report annually to the Central Government.
The IEPF Authority will also put together its annual report for every financial year, giving a complete summary related to its activities during the year and forward the copy to the Central Government. The Central Government will lay down the annual report by the IEPF Authority and the audit report given by the Comptroller and Auditor-General of India before each House of the Parliament.
Objectives of IEPF
· To educate the investors about how the market operates.
· Making investors educated enough so that they can analyze and make informed decisions.
· To educate investors about the dynamism of the markets.
· Making investors realize their rights and various laws about investing.
· Promoting research and surveys to spread knowledge among investors.
Changes in IEPF provisions by recent amendments
· A new concept of e-Form IEPF-1 has been introduced for reporting dividends already transferred but reporting not made till notification of IEPF authorities.
· e-Form IEPF-2 is required to be filed for updating nodal officer details till September 4 for the first time and thereafter within 7 days of any change in nodal officer along with the board resolution.
· e-Form IEPF-5 is the form through which the shareholders can claim a refund of their shares and dividend of IPF authority with the help of nodal authorities.
The utilization of the IEPF Amount
The Act provides that the IEPF Authority will utilize and spend the IEPF amount only for the following purposes:
· Refund in respect of matured debentures, matured deposits, unclaimed dividends, the application money due for repayment, and its interest.
· Promotion of investors’ awareness, education, and protection.
· Reimbursement of legal expenses incurred for pursuing class-action suits under Sections 37 and 245 of the Act by debenture-holders, members, or depositors and sanctioned by the National Company Law Tribunal.
· Distribution of disgorged amount amongst identifiable and eligible applicants for debentures or shares, debenture-holders, shareholders, or depositors who have suffered losses because of the wrong actions by any person, as per the court orders of disgorgement. The disgorged amount means the amount received through the disposal or disgorgement of securities.
Hence, Investor Education and Protection Fund (IEPF) is a fund set up to accumulate all kinds of dividends, matured deposits, share applications, debentures, and interest that are unclaimed for seven years to benefit the investors for their education and awareness. Initially, only clause (3) and clause (11) of section 125 of the Companies Act, 2013 were notified but with due course of time, all its clauses were notified by the government.