Government will take away your shares if dividend from shares have gone unclaimed for 7 consecutive years
Jan 11, 2024
Synopsis
If an individual has not claimed dividend given on shares held by him or her for seven consecutive years, then the company has to transfer those shares and the dividend money to Investor Education and Protection Fund (IEPF), which is managed by Ministry of Corporate Affairs (MCA). However, an individual can claim back those shares by following an online process.
All the shares which you have been accumulating might be taken away by the government and transferred to a specified fund if dividends given on such shares are not claimed for seven consecutive years. However, before taking the securities away the individual would be intimated and if appropriate action is undertaken by him/her, the securities won't be taken away.
Nevertheless, despite repeated intimations, if an individual fails to take any action, the said securities belonging to the individual would be transferred to the Investor Education and Protection Fund (IEPF). However, such securities so transferred to the IEPF can be claimed back by the individual or his/her legal heir upon submission of a specified electronic Form and certain documents.
Why are shares transferred to IEPF?
According to the Companies Act, 2013 securities have to be transferred to the IEPF when the shares or dividends remain unclaimed or unpaid, respectively for seven consecutive years.
"Securities in which dividends have gone unclaimed or unpaid for seven consecutive years or more are subsequently transferred to the Investor Education & Protection Fund (IEPF), which is managed by the Ministry of Corporate Affairs (MCA)," says Bhavik Gandhi- Head- Operations, Mirae Asset Capital Market.
How to save shares from getting transferred to the IEPF?
The only criterion for shares getting transferred to the IEPF is when the dividends paid on those shares remain unclaimed for seven consecutive years.
"If the dividend is credited to the individual's bank account without being returned back to the company, it indicates that it is not unpaid, and the transfer of shares to IEPF is not necessary," says Gandhi.
Hence, be cautious and keep a watch on the status of your bank account or update your current address with the company if you are getting paid dividends through cheque.
Usually in dormant bank accounts, or frozen due to non-compliance with re-KYC norms, the status of the bank account becomes frozen only for debits, i.e. no money can go out while credit to the account remains uninterrupted.
According to Shreejith Menon, Chief Operating Officer - Operations, Customer Service & Facilities, Fincare Small Finance Bank, "If a bank account has become dormant for an extended period, the account may be subject to certain restrictions on Debit transactions only. if an individual has not complied with RE-KYC requirements banks initiate the Debit restrictions for such non complied customers, nonetheless Credit transactions are permitted. If there is an active National Automated Clearing House (NACH) or Electronic Clearing Service (ECS) mandate, banks have a policy that they won't close the account unless the account holder provides information for a replacement bank account."
Only in certain extraordinary situations can banks change the status of the savings account to freeze for credit, i.e. no money can come in. "However, in certain extraordinary cases like suspected fraud or unusual activity, or legal notices/court orders/attachments and investigations, or suspected money laundering, or bankruptcy, or demise of the account holder, banks would freeze the account for credits," Menon added.
So, the highest possibility of dividend return is in the paper form and in the extraordinary cases mentioned above where it is delivered physically to investors and might face a return or not being deposited to a bank account.
How to know if shares are being transferred to IEPF?
If the dividend remains unclaimed for seven consecutive years, then the process of transferring them to the IEPF starts.
"Before transferring the shares from the individual's demat account to IEPF, investors are usually informed by the company through various means, including public notices about the impending transfer of their shares to the IEPF. Additionally, the companies whose shares are subject to transfer to the IEPF are required to provide necessary details to the IEPF authority in a specified format," says Gaurav Garg, Chief of Business, BlinkX by JM Financial, a stockbroker.
Stockbrokers usually do not have any knowledge of shares being transferred to the IEPF. "The company, registrar and transfer agent (RTA), or depository does not inform the stockbroker or depository participant (DP) about shares being transferred to IEPF. When an individual realises their shares are missing from their demat account and contacts the DP or stockbroker, the DP checks the transaction statement to discover about the transfer of shares to IEPF," says Gandhi.
How to claim back shares transferred to IEPF?
There is a dedicated IEPF website from where a specified form needs to be electronically filed. Stockbrokers or DPs can also help with the necessary information that needs to be filled in the specified form on the IEPF website. "The individual needs to fill out a form called IEPF-5, sign it, and submit it to the IEPF Authority along with a prescribed fee," says Gandhi.
The link to upload a filled up IEPF-5 Form is this: https://www.mca.gov.in/mcafoportal/iepf5Service.do
According to a frequently asked question on the IEPF website, "The procedure for filling the e-Form is simple. On a plain reading any literate individual can fill e-Form on his own. A general guidance kit is also attached with the form for any help, if required for filling up such Form. For any further help the IEPF helpline can also be contacted."
The IEPF helpline number is 1800 114 667. The IEPF helpdesk email ID is
What are the documents required for claiming back shares transferred to IEPF?
According to the FAQ on the IEPF website, seven or eight (only for NRIs and foreigners) documents are required for claiming back shares transferred to IEPF.
The documents are:
- Copy of the acknowledgement generated on online submission of e-Form IEPF - 5 bearing a unique serial number (SRN), and
- Indemnity Bond (original) with claimant signature,
- Advance stamped receipt (original) with revenue stamp and signature of claimant and witnesses,
- Original matured deposit / debenture / share certificate (only in case of securities held in physical form) or copy of transaction statement in case of securities held in demat form,
- Self-attested copy of Aadhaar card,
- Proof of entitlement (certificate of share/Interest warrant application no. etc.),
- Cancelled cheque leaf,
- Copy of Passport, OCI and PIO card in case of foreigners and NRI.
[The Economic Times]
