Background

The Unpaid Dividend Account mechanism has been introduced to safeguard the interests of shareholders whose dividends remain unpaid or unclaimed. It ensures that such amounts are first secured in a designated bank account and, if unclaimed for a prolonged period, are ultimately transferred to the Investor Education and Protection Fund (IEPF) established under Section 125 for investor protection and awareness.

Compliance Framework

1. Declaration of Dividend & its Initial/subsequent Transfer

Where a dividend has been declared but remains unpaid or unclaimed within 30 days from the date of declaration, the company shall, within 7 days after expiry of the said 30 days, transfer the total unpaid or unclaimed amount to a special bank account titled “Unpaid Dividend Account” in any scheduled bank. (Section 124(1))

Any amount transferred to the Unpaid Dividend Account that remains unpaid or unclaimed for seven years from the date of such transfer shall be transferred, along with accrued interest, to the Investor Education and Protection Fund. (Section 124 (5)

2. Disclosure Requirements (Section 124(2))

Within 90 days of transfer of Unpaid Dividend amount, the company must prepare and publish on its website a statement containing:

• • Names of shareholders
  • Last known addresses
  • Amount of unpaid dividend

Remittance to IEPF (Rule 5)

Any amount required to be credited to the Fund under Section 125(2) (a) to (n) must be:

• • Remitted online within 30 days of becoming due;
  • Accompanied by a Statement in Form No. IEPF-1 containing details of such transfer. (Rule 5(1))

Where amounts under Section 205C (2)(a) to (d) were transferred but statements were not filed or not filed in excel template format, details must be submitted in Form No. IEPF-1A within 60 days of notification of amended rules. (Rule 5(4A))

The company shall maintain records filed under Rule 5(1) along with supporting documents, which are subject to inspection by the Authority. (Rule 5(6)(c))

Annual Disclosure (Rule 5(8)) Companies must identify and upload unclaimed amounts on their website and IEPF portal in Form No. IEPF-2 within 60 days after AGM or due date, whichever is earlier. This must include:

• • Names and last known addresses
  • Nature of amount
  • Amount entitled
  • Due date for IEPF transfer

3. Transfer of Shares to IEPF (Section 124(6) read with Rule 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 the Investor Education and Protection Fund.

Further, as per the second proviso to Rule 6(11), any claimant entitled to claim transfer of such shares from the Authority shall be entitled only to the amount received by the Authority on behalf of the minority shareholder without any interest thereon.

Key Exception: If any dividend is paid or claimed during the said seven consecutive years, the share shall not be transferred to the IEPF.

Share Transfer Procedure (Rule 6)

• • DEMAT Credit: Shares must be credited to the Authority’s DEMAT account within 30 days of becoming due for transfer.
  • If the beneficial owner has encashed any dividend warrant or received dividend in bank account during the last seven years, such shares are not required to be transferred even if some warrants remain unencashed.

Advance Notice (Rule 6(3)(a))

The company must:

• • Inform shareholders at least three months prior to transfer; and
  • Publish notice in leading English and regional newspapers.

Exceptions (Rule 6(3)(b))

Shares shall not be transferred if they are:

• • Subject to court orders
  • Pledged or hypothecated
  • Already transferred

The company shall furnish details of such shares and unpaid dividend to the Authority in Form No. IEPF 4 within thirty days from the end of financial year.

Voting Rights (Rule 6(6))

Voting rights on shares transferred to the Fund remain frozen until claimed by the rightful owner.

Corporate Benefits (Rule 6(8))

All corporate benefits such as bonus shares, split, consolidation, fractional shares, etc. (except right issue) shall also be credited to the Authority’s DEMAT account.

Restrictions (Rule 6(9))

Shares in the DEMAT account cannot be transferred except:

• • Back to rightful claimants
  • In cases of delisting
  • Winding up
  • Buyback under Section 236

Penalty & Punishment

Interest on Default (Section 124(3))

In case of failure to transfer unpaid or unclaimed dividend within the prescribed timeline, the company shall pay interest at 12% per annum on the defaulted amount. Such interest shall accrue for the benefit of the members in proportion to the unpaid amounts due to them.

Penalty on Company:

• Rs. 1 lakh; and
• In case of continuing failure, Rs. 500 per day, subject to a maximum of Rs. 10 lakh.

Penalty on Officer in Default:

• Rs. 25,000; and
• In case of continuing failure, Rs. 100 per day, subject to a maximum of Rs. 2 lakh.