MCA allows IEPFA to liquidate existing holding of equity shares

K.R.Srivats | Updated on: Jan 15, 2022
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In case of disputes with minority shareholders, company liable to indemnify IEPFA

Corporate Affairs Ministry (MCA) has now empowered the Investor Education and Protection Fund Authority (IEPFA) to liquidate shares held by it and acquired on account of dividend remaining unpaid or unclaimed by the shareholder for a period of seven years. IEPFA will now be entitled to offer the shares to the acquiring entity in case of amalgamation, share exchange, conversion of securities and also receive money on behalf of minority shareholders, the MCA has said. Hitherto, IEPFA could surrender the shares only in case of delisting of securities or when the company was getting wound up. MCA has now said that the money received on behalf of the minority shareholders should be credited to the Investor Education and Protection Fund (IEP) and a separate ledger account should be maintained for such proceeds.

Liability part

Also, it has been provided that company would be liable under all circumstances whatsoever to indemnify the IEPFA in case any dispute or lawsuit may be initiated. The IEPFA would not be liable to indemnify the minority shareholder or the company or any other person for liability arising, leading to any litigation or complaint related to such shares, the MCA has said. It may be recalled that IEPFA was set up in September 2016 for administration of investor education and protection fund ( IEPF).

It is also entrusted to make refunds of unclaimed shares, unclaimed dividends, matured deposits/debentures etc to investors and promote awareness among investors. The IEPF, among other things, is to be utilised for promotion of investors education, awareness and protection.

The government had, last November, simplified the claim settlement process under IEPFA, including allowing self-attestation of documents instead of current requirement of notarisation. The new regime had envisaged a trust based model for faster citizen centric services and turnaround time. This was expected to encourage many more claimants to come forward to claim their shares and amounts from IEPFA, the government had then said.

‘Welcome initiative’

Commenting on the latest MCA move, Sumit Naib, Director- Regulatory, Nangia Andersen LLP told BusinessLine : “This is a welcome move and shall provide an avenue to IEPF authority to liquidate existing holding. At the same time, the minority shareholder shall have the right to claim the amount from IEPF authority. In case of any future dispute/ lawsuit, the Company shall be liable to indemnify IEPF authority”. Aseem Chawla, Managing Partner, ASC Legal, said “ The said rules are a welcome initiative in highlighting the steps and measures that are required to be undertaken in situations of claims being put forth. Emphasis is suggested that under all times it is the underlying Company which has to indemnify the authority which would ensure proper due diligence is exercised upfront by the Company in dealing such matters” 

Published on January 15, 2022

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