Companies Act Section 125

Companies Act Section 125- Investor Education and Protection Fund (IEPF)

1. Establishment of the Investor Education and Protection Fund (IEPF)

Under the provisions of Section 125 of the Companies Act, 2013, the Central Government is required to establish a dedicated fund known as the Investor Education and Protection Fund, hereinafter referred to as "the Fund". This Fund is created to promote investor awareness, provide refunds of unclaimed money, and to safeguard the interests of investors in general.

2. Sources of Money Credited to the Fund

The following amounts, received from various sources, are required to be credited into the Investor Education and Protection Fund:

(a) Grants from the Central Government

The Fund shall receive financial contributions from the Central Government in the form of grants. These grants are provided after due appropriation by Parliament, as per relevant laws, specifically for the purpose of the Fund.

(b) Donations from Governments, Companies, and Institutions

The Fund can also receive voluntary donations from the Central Government, State Governments, companies, or other institutions, if such donations are meant to support the objectives of the Fund.

(c) Unpaid Dividend Accounts

All unclaimed and unpaid dividends lying in the Unpaid Dividend Accounts of companies, as mandated under Section 124(5) of the Companies Act, 2013, must be transferred to the Fund.

(d) Amounts from General Revenue Account (Historical Transfer)

Any amount that had previously been transferred to the general revenue account of the Central Government, under Section 205A(5) of the Companies Act, 1956, and remained unclaimed or unpaid at the time this new Act commenced, shall also be transferred to the Fund.

(e) Previous Fund Balances (Investor Education and Protection Fund under Companies Act, 1956)

Any balance already present in the old Investor Education and Protection Fund under Section 205C of the Companies Act, 1956 shall also be credited to this Fund.

(f) Income from Investments

Any interest, income, or profit generated from the investment of money belonging to the Fund shall also be added to the Fund.

(g) Amount from Section 38(4)

Any amount recovered under Section 38(4) of the Companies Act, 2013 (which relates to issuing securities in contravention of rules) will also form part of the Fund.

(h) Unclaimed Application Money for Securities

Any application money received by companies for allotment of securities, which remains due for refund, must be transferred to the Fund.

(i) Matured Deposits (other than banking companies)

All matured deposits held by companies, excluding banking companies, that remain unclaimed must be credited to the Fund.

(j) Matured Debentures

All matured debentures that remain unpaid and unclaimed must also be transferred to the Fund.

(k) Interest on Unclaimed Amounts

Any accrued interest on the amounts mentioned in clauses (h) to (j) must also be credited to the Fund.

(l) Sale Proceeds of Fractional Shares

The sale proceeds of fractional shares, arising out of corporate actions such as bonus issues, mergers, or amalgamations, which remain unclaimed for seven or more years, must also go into the Fund.

(m) Redemption Amount of Preference Shares

If the redemption amount of preference shares remains unclaimed for seven or more years, such money must be transferred to the Fund.

(n) Other Prescribed Amounts

The Fund may also receive other sums of money, if specifically prescribed by the relevant authorities.

Important Provision:

For the amounts mentioned in clauses (h) to (j), no money shall be transferred to the Fund unless such amounts have remained unclaimed and unpaid for at least seven years from the date the payment was due.

3. Utilisation of the Fund

The money accumulated in the Investor Education and Protection Fund shall be utilized for the following key purposes:

(a) Refund of Unclaimed Amounts

The Fund shall be used to make refunds relating to:

Unclaimed dividends

Matured deposits

Matured debentures

Unclaimed application money

Accrued interest on such amounts

(b) Promotion of Investor Education and Awareness

The Fund will also be used to actively promote investor education, awareness campaigns, and protection programs across the country.

(c) Distribution of Disgorged Amounts

In cases where a Court orders disgorgement of gains made through wrongful means, the disgorged amount shall be distributed to the eligible and identifiable shareholders, debenture holders, depositors, or investors who have suffered losses due to such wrongful actions.

(d) Reimbursement of Legal Expenses for Class Actions

The Fund may reimburse legal expenses incurred by shareholders, debenture-holders, or depositors when they pursue class action suits under Section 37 or Section 245, if the Tribunal sanctions such reimbursement.

(e) Incidental or Related Purposes

The Fund may also be applied to any other purpose related to investor protection as prescribed by rules.

Note:

Persons whose amounts were already transferred to the old Investor Education and Protection Fund under Section 205C of the Companies Act, 1956 (after 7 years) can still claim refunds under the rules prescribed under this section.

Explanation:

The term "disgorged amount" refers to money recovered from individuals or companies who wrongfully gained at the expense of investors, usually pursuant to a Court order.

4. Claiming Amounts from the Fund

Any person who believes they are entitled to any unclaimed amount transferred to the Fund can apply to the competent authority (as constituted under sub-section (5)) for receiving the due payment.

5. Establishment of Authority to Administer the Fund

The Central Government shall, through notification, establish an authority responsible for administering the Fund. This authority shall consist of:

A chairperson

A maximum of seven members

A chief executive officer (CEO)

All appointments will be made by the Central Government.

6. Rules for Administration

The manner of administration, including how meetings will be held and the appointment process for the chairperson, members, and CEO, shall be governed by prescribed rules.

7. Provision of Resources

The Central Government shall also provide necessary offices, officers, employees, and other resources to the authority, as prescribed under the rules.

8. Maintenance of Records

The authority shall maintain:

Separate accounts for the Fund

All relevant financial records

This shall be done in consultation with the Comptroller and Auditor-General of India (CAG) and in accordance with prescribed rules.

9. Authority’s Power to Spend

The authority shall have the power to spend money from the Fund for the purposes specified in sub-section (3), such as refunds, education campaigns, or legal reimbursements.

10. Audit of the Fund

The Comptroller and Auditor-General of India (CAG) shall audit the Fund’s accounts at regular intervals. The audited accounts, along with the audit report, must be submitted annually to the Central Government.

11. Annual Report

The authority shall prepare an annual report for each financial year, giving a detailed account of its activities. This report, along with the CAG audit report, shall be presented by the Central Government before both Houses of Parliament.