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The finance ministry is considering amending the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, which governs public-sector banks (PSBs), to make suitable provisions for allowing PSBs to transfer shares to the Investor Education and Protection Fund (IEPF) when dividends of such shares remain unclaimed by the investors for seven consecutive years.
“While Section 10B of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, allows the transfer of unclaimed dividends to the IEPF, it, however, does not mention a provision for transferring unclaimed shares and may now be amended by the next government to allow such transfers to happen,” said a person familiar with the matter.
An email query sent to the finance ministry remained unanswered until the time of going to press.
IEPF was established for the promotion of investor awareness and protection of their interests.
Unclaimed dividends and shares transferred to IEPF can be easily claimed by the investor by submitting the required documents and following the verification process.
According to the latest annual report of IEPF, companies have transferred Rs 446 crore to IEPF in 2021-22, while the cumulative balance available with IEPF by the end of 2021-22 is Rs 5,262 crore.
Private companies, including private banks, which are covered under the Companies Act already transfer both unclaimed dividends and shares to IEPF.
Experts believe that the primary objective of the proposed amendment is to align the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, with the requirements prescribed under the Companies Act, 2013.
Sanjay Agarwal, senior director at CARE Ratings, said that the government and regulators are working to provide ease of business by harmonising various regulations across different subjects and statutes.
“These measures by the government and various regulators work towards the objective of easing business and reducing compliance burdens for businesses,” he added.
Mukesh Chand, senior counsel of Economic Laws Practice, said that the proposed amendment seeks to bridge the gap and ensure consistency in regulatory practices across different statutes governing financial institutions.
“By mandating the transfer of shares in addition to unclaimed dividends, the proposed amendment enhances transparency and accountability in the management of unclaimed funds, fostering investor confidence and trust in the banking system,” he added.
The incorporation of a seven-year period for the transfer of unclaimed dividends and shares is consistent with established legal principles, such as those outlined in Section 108 of the Indian Evidence Act, 1872.
This provision shifts the burden of proving a person’s existence to the claimant after a specified period of absence, ensuring a fair and systematic approach to managing unclaimed assets.
