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TMI Blog2017 (12) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... Court holds that Section 124(6) does not result in a statutory vesting of any property; it merely transfers through transmission of shares in companies which have yielded dividends for seven years that have not been claimed. Such shares are then transferred to the Fund which then holds them as a custodian – in whichever manner one would wish to say it. The Central Government further is mandated to devise appropriate procedures to enable shareholders to reclaim their property in the shares, by an appropriate procedure. For the duration of transfer of the shares, the companies cannot issue bonus shares or add anything prohibited under Section 126. As far as the operationalisation of this provision goes, the Rules, especially the first and second amendments had the effect of giving companies adequate time to notify and comply with the three month public notice period to their shareholders about the event of transfer. The Court also notices that the transfer of such shares or classes of shares is not a one-time measure but an ongoing event given the obligation of each company to identity such shares after the holding of every AGM. It is imperative that the Central Government gives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en-cash their dividends for seven years, they would face asset deprivation. Terming shares as valuable property, the petitioner states that such radical change has to be carefully introduced and not in a tardy manner. It is submitted that the share transfer mandated by Section 124 (6) is not limited to those holding physical scrips, but to all dematerialized ( demat for short) shares. In the case of the latter, the demat accounts would be automatically debited or altered and the shareholding would be automatically depleted. 4. The magnitude and enormity of the consequence of Section 124 (6) is sought to be highlighted by a few examples; the petitioner submits that the extent of shareholding transferred by operation of law varies from its impact to as much as 3384 shareholders holding (in Axis Bank) to 10519 shareholders in ACC Cement Ltd. In both cases- as well as other cases, cited in the petition, the shareowners did not encash the dividends for last seven years. The petition describes the scheme of the Rules, framed on 05.07.2016 and submits that they devised an impractical procedure, which the authorities realized and therefore, amended the Rules on 28.02.2017 ( first ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that according to the operation of the Rules, vesting occurs, as a certain event and had in fact occurred, on 31.05.2017. This was on the basis of the first amendment which fixed that as the date. Yet, by the notice of 27.04.2017, it was notified that National Securities Depository Limited (NSDL) which had to hold the special demat account on behalf of the Fund, was to prescribe the necessary forms and operational procedures for transfer of shares by 30.04.2017 and 15.05.2017 respectively. Sh. Subramanian, learned counsel argues that the imperative of Rule 6(3) to inform the shareholder concerned with respect of transfer of shares three months before the due date of transfer and follow the procedure prescribed, was overlooked. This, it was argued, was because of the condition and amendment of provisos to Rule 6, which stated that if a shareholder had encashed any dividend warrant, such shares would not be transferred to the Fund even though some share warrants have not been encashed and that the second proviso provided that after the seven-year period was completed between 07.09.2016 to 31.05.2017, the date of transfer of such shares would be deemed to be 31.05.2017. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was listed on the next date, i.e. 30.11.2017 when some submissions were made and the petition was listed for orders for 05.12.2017. The respondents urged that the petition is misconceived. Learned ASG relies upon a clarification as to the date of transfer of shares issued by the Union Ministry of Corporate Affairs on 29.05.2017. The clarification reads as follows: Subject: Clarification regarding due date of transfer of shares to IEPF Authority Sir/Madam, Pursuant to second proviso to Rule 6 of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Amendment Rules, 2017 notified on February 28, 2017, where the seven year period provided under sub-section (5) of Section 124 is completed during September 7, 2016 to May 31,2017, the due date for transfer of such shares by companies is May 31, 2017. 2. The modalities for transfer/transmittal of shares from companies accounts to the demat account of the IEPF Authority are being finalized with the depositories. IEPF Authority is considering to open special Demat Account and till opening of demat accounts, the due date for transfer of shares stands extended. In view of this, a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s petition is concerned with the transfer of shares to the Fund collected by the Companies Act. For a better resolution of the controversy it would be necessary to extract Section 124: 124. Unpaid Dividend Account - 1 ) Where a dividend has been declared by a company but has not been paid or claimed within thirty days from the date of the declaration to any shareholder entitled to the payment of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days, transfer the total amount of dividend which remains unpaid or unclaimed to a special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account. (2) The company shall, within a period of ninety days of making any transfer of an amount under sub-section (1) to the Unpaid Dividend Account, prepare a statement containing the names, their last known addresses and the unpaid dividend to be paid to each person and place it on the web-site of the company, if any, and also on any other web-site approved by the Central Government for this purpose, in such form, manner and other particulars as may be prescribed. (3) If a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med dividend, matured deposits, matured debentures, promotion of investors education, awareness and protection etc. The procedure for management of the Fund, appointment of its personnel, date and information are outlined in the other provisions of Section 125. Section 126 enacts as follows: 126. Right to dividend, rights shares and bonus shares to be held in abeyance pending registration of transfer of shares Where any instrument of transfer of shares has been delivered to any company for registration and the transfer of such shares has not been registered by the company, it shall, notwithstanding anything contained in any other provision of this Act,- (a) transfer the dividend in relation to such shares to the Unpaid Dividend Account referred to in section 124 unless the company is authorised by the registered holder of such shares in writing to pay such dividend to the transferee specified in such instrument of transfer; and (b) keep in abeyance in relation to such shares, any offer of rights shares under clause (a) of sub-section (1) of section 62 and any issue of fully paid-up bonus shares in pursuance of first proviso to sub-section (5) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome dividend warrants may not have been encashed. (2) For the purposes of effecting transfer of such shares, the Board shall authorise the Company Secretary or any other person to sign the necessary documents. (3) The company shall follow the following procedure, namely:- (a) The company shall inform at the latest available address, the shareholder concerned regarding transfer of shares three months before the due date of transfer of shares and also simultaneously publish a notice in the leading newspaper in English and regional language having wide circulation, and on their website giving details of such shareholders and shares due for transfer: Provided that in cases, where the seven years as provided under sub-section (5) of section 124 have been completed or are being completed within three months from the date of coming into force of these rules, the company shall initiate the aforesaid procedure immediately and transfer the shares on completion of three months; (b) In case, where there is a specific order of Court or Tribunal or statutory Authority restraining any transfer of such shares and payment of dividend, the company shall not transfer such shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lips, transfer deeds and duplicate certificates for its records. (5) While effecting such transfer, the company shall send a statement to the Fund in Form No. IEPF 4 containing details of such transfer. (6) The voting rights on shares transferred to the Fund shall remain frozen until the rightful owner claims the shares: Provided that for the purpose of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the shares which have been transferred to the Authority shall not be excluded while calculating the total voting rights. (7) Once the physical shares are transferred in the name of the Authority, the Authority shall dematerialise these shares and it shall keep only those shares in physical form, where dematerialisation of shares is not possible. 16. The first amendment on 28.02.2017, substituted the original Rules which then read as follows: 4. In the principal rules, for rule 6, the following rule shall be substituted, namely:- 6. Manner of transfer of shares under sub-section (6) of section 124 to the Fund.- (1) The shares shall be credited to DEMAT Account of the Authority to be opene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer where the shares are held in physical form- (i) the Company Secretary or the person authorised by the Board shall make an application, on behalf of the concerned shareholders, to the company, for issue of duplicate share certificates; (ii) on receipt of the application under clause (a), a duplicate certificate for each such shareholder shall be issued and it shall be stated on the face of it and be recorded in the register maintained for the purpose, that the duplicate certificate is Issued in lieu of share certificate No..... for purpose of transfer to IEPF and the word duplicate shall be stamped or punched in bold letters on the first page of the share certificate; (iii) particulars of every share certificate issued as above shall be entered forthwith in a register of renewed and duplicate share certificates maintained in Form No. SH-2 as specified in the Companies (Share Capital and Debentures) Rules, 2014; (iv) after issue of duplicate share certificates, the company shall inform the depository by way of corporate action to convert the duplicate share certificates into DEMAT form and transfer in favour of the Authority. (4) The company sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticulars of every share certificate shall be in Form No. SH-1 as specified in the Companies (Share Capital and Debentures) Rules, 2014; (iv) after issue of a new share certificate, the company shall inform the depository by way of corporate action to convert the share certificates into DEMAT form and transfer in favour of the Authority. 19. The sum and substance of the Rules is that the companies were mandated to follow two crucial steps one, inform the shareholders about the manner of vesting of shares and in that regard provide three clear months before the date of statutory transfer and two, ensure that the further conditions and changes introduced by the first and second amendments, granting relief to certain classes of shareholders who might have either in the interregnum encashed dividends or approached them to reclaim the shares, were protected. 20. The essential condition for the purpose of this proceedings is encapsulated in Rule 6(3)(a) which obliges the companies to inform the shareholders in the manner prescribed three months from the due date of transfer. The due date of transfer was an unclear concept under the old Rules originally notified on 05.09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 31, 2017, the due date for transfer of such shares by companies is October 31st, 2017. 2. The IEPF Authority has opened demat accounts with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) through Punjab National Bank and SBICAP Securities Limited respectively, as Depository Participants. The details of said accounts are as under: Particulars PNB SBICAP DP ID IN300708 12047200 Client ID 10656671 13676780 3. These demat accounts will have features and functionality to support lEPF Operations using paperless, digital processes and facilitate record keeping of shares Transferred to the IEPF Authority to meet the requirements of the Rules. 4, All companies which are required to transfer shares to IEPF Authority under the aforesdid. Rules, shall transfer such shares, whether held in dematerialised form or physical form, to the demat accounts of IEPF AuthPrity by way of corporate action. The information related to the shareholders, whose shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast from 28.02.2017, the companies were obliged to provide notice and were given that time. The extension of date to 31.10.2017 meant that if any company was in the dark or could not for some reason, give adequate notice, it was enabled to do so during the extended period. 22. As far as the non-compliance with requirement of notice by various companies goes, this Court is of the opinion that in public interest proceedings, those violations and non-compliances cannot be gone into. What is clear is that the combined effect of the first and second amendments to the Rules, results in companies becoming aware adequately in advance of their obligations, especially towards notifying the shareholders about the transfer. This appears to be the main grievance of the petitioner. So far as the other aspect highlighted with regard to the non-publication of list of shareholders goes, this Court is of the opinion that without any details or reference to form etc. in this regard, it would be next to impossible to return a finding. These are causes that cannot and ought not to be gone into in public interest proceedings. 23. To summarize, the Court holds that Section 124(6) does not result in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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