Investor Education and Protection Fund (IEPF)

  Just like how a human body needs blood for survival, so does a business that needs investors. The number of investors and their investment is dependent on the size of the business. Investing in itself is an art. While those persons investing in big companies or large-scale businesses are skilled enough to possess a good amount of investment and business sense, there are investors belonging to a certain section who aren’t that aware of the latest developments and trends in investments.

  For a simple understanding, investors can be broadly classified into 2 kinds i.e professional investors (who are usually corporate entities or investment companies) and non-professional investors (who are the small/retail investors with a limited amount of investments). Irrespective of whichever category they belong to, the companies in which such investment is made are duty-bound to protect the investors’ interests.

  The Government also encourages the protection of investor’s interests and educating them because without investments the economy of a nation would struggle. This is why a fund by the name Investor Education and Protection Fund (IEPF) was set up by the Government of India.

   Now, how does the fund operate, and for what purposes is it utilized is given under the company law of India. We shall further discuss the IEPF in detail.

About IEPF:

IEPF is a fund set up by the Central Government under the Ministry of Corporate Affairs (MCA). It promotes awareness to be created among investors and aims at protecting the investors’ interests.

Amounts credited to IEPF:

Contributions are made to the IEPF in the following ways:

(i) Grants provided by the Central Government under a law passed by the Parliament relating to the fund.

(ii) Amounts donated by the Central and State Governments, companies, and institutions.

(iii) Balances from the unpaid dividend account of companies.

(iv) Balances from the general revenue account of the Central Government which are unpaid and unclaimed under the Companies Act of 1956.

(v) Amount under the Investor Education and Protection Fund set up under the previous company law.

(vi) Interest or such other income earned on the investments made out of the fund.

(vii) Amounts earned through illegal sale or disposal of securities (also known as disgorgement).

(viii) Application monies on shares that companies receive for allotment of securities are due for refund and are unclaimed and unpaid for 7 years from the date of them becoming due along with the interest on them if any.

(ix) Amounts of deposits accepted by companies that are matured, unclaimed and unpaid for 7 years from becoming due and the interest on them if any.

(x) Amounts of debentures with companies that are matured, unclaimed, and not paid for 7 years from having become due and the interest on them if any.

(xi) Proceeds out of selling fractional shares in case of a bonus issue, merger and amalgamation for 7 years or more.

(xii) Amount due for the redemption of preference shares unclaimed or unpaid for 7 years or more.

(xiii) Other amounts as the law prescribes.

Utilization or application of amounts that are credited to IEPF:

The amounts credited to IEPF shall be applied for the following purposes:

(i) making a refund of the amounts of unclaimed dividends, matured debentures, matured deposits, and application money due for refund along with the interest on these amounts if any.

(ii) promoting education of the investors and protection of their interests.

(iii) distributing the disgorged amounts to the real beneficiaries who have suffered losses due to the unfair and illegal practices of perpetrators of fraud.

(iv) reimbursement of legal expenses incurred with respect to class action suits filed by members, depositors, and debenture holders and the amount to be reimbursed shall be approved by the NCLT.

(v) other purposes that are relating to the aforesaid points.

About IEPF Authority:

The IEPF Authority is constituted by the Central Government which is entrusted with the administration and management of the funds credited to IEPF.

IEPF Authority shall consist of a chairperson, a CEO, and other members not more than 7 appointed by the Central Government.

The accounts of the IEPF shall be audited by the Comptroller and Auditor General (CAG). The audited accounts along with the audit report shall be forwarded by the IEPF Authority to the Central Government.

An annual report of the IEPF for each financial year shall be prepared by the IEPF Authority and shall be submitted by it to the Central Government.

Conclusion:

The Government’s initiative like IEPF endeavors to protect the interest of the investors and tries to indemnify them due to default of the companies or a failure on their part to claim the amount due. It also assures the investors that they will get back their money as there is a well-structured authority that manages the fund. Due to the increasing defaults made by companies these days, it is important that investors keep themselves informed about IEPF and the ways to approach it to get back their dues.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.