The Ministry of Corporate Affairs (MCA) has now empowered the Investor Education and Protection Fund Authority (IEPFA) to liquidate shares held by it and acquired in respect of the dividend remaining unpaid or unclaimed by the shareholder for a period of seven years. The IEPFA will now have the right to offer the shares to the acquiring entity in the event of a merger, share exchange, securities conversion and also to receive money on behalf of minority shareholders, said the MCA. Until now, the IEPFA could only transfer the shares in the event of deregistration of securities or liquidation of the company. MCA has now said that money received on behalf of minority shareholders should be credited to the Investor Education and Protection (IEP) Fund and that a separate account should be maintained for this proceeds.

Party responsibility

Also, it was provided that the company would be required in all circumstances to indemnify the IEPFA in the event of litigation or legal proceedings. The IEPFA would not be required to indemnify the minority shareholder or the company or any other person for liability arising from any litigation or claim related to those actions, the MCA said. Recall that the IEPFA was created in September 2016 to administer the Investor Education and Protection Fund (IEPF).

It is also responsible for repaying unclaimed shares, unclaimed dividends, matured deposits/bonds, etc. to investors and raise investor awareness. The IEPF, among other things, should be used for the promotion of investor education, awareness and protection.

The government last November simplified the claims process under the IEPFA, including allowing documents to be self-certified instead of the current notarization requirement. The new regime envisioned a trust-based model for faster, citizen-centric services and turnaround times. This should encourage many other claimants to come forward to claim their IEPFA shares and amounts, the government said at the time.

“Welcome to the Initiative”

Commenting on MCA’s latest decision, Sumit Naib, Chief Regulatory Officer, Nangia Andersen LLP, told BusinessLine: “This is a welcome decision and will provide the IEPF authority with a means to liquidate existing holdings. At the same time, the minority shareholder will have the right to claim the amount from the IEPF authority. In the event of future litigation/lawsuit, the Company will be liable to indemnify the IEPF authority.” Aseem Chawla, Managing Partner, ASC Legal, said, “The said rules are a welcome initiative to outline the steps and measures that need to be taken in situations where claims are made Emphasis is that at all times it is the underlying company that must indemnify the authority that would ensure that proper due diligence is exercised from the departure by society in dealing with these issues.”

Published on

January 15, 2022