MCA issues yet another circular on IEPF, but still no clarity on transfer of shares
The Ministry of Corporate Affairs (MCA) has added yet another Circular to the flurry of circulars on Investor Education and Protection Fund (IEPF), on 5 June 2017. The circular provides that companies may follow the procedure as in the case of transmission for transferring the shares to IEPF.
The circular states that stakeholders have sought clarification from the IEPF Authority with respect to the issuance of duplicate share certificates under Rule 6 (3) (d) of the Investor Education and Protection Fund (Accounting, Audit, Transfer and Refund) Rules, 2016 (‘IEPF Rules’).
Since transfer of shares under the IEPF Rules takes place as a consequence of operation of law, it becomes similar to that of transmission which takes place as a result of operation of law. Therefore, companies may follow the transmission procedure while transferring shares to the IEPF demat account. While this stand of the IEPF has come after a long time, we have from the very beginning been of the view that transfer of shares under IEPF is a transfer inter-vivos and is a result of operation of law and not by consent of the parties.
In spite of the trail of circulars about IEPF, things are not fully clear and hence further clarification is expected from the Ministry, in the absence of which the matter is still left for interpretation, leaving room for confusion in the mind of stakeholders.
Transmission v/s Transfer of shares to IEPF demat account
Transmission has not been defined under the Companies Act, 2013 (‘Act, 2013’). However, section 56 of the Act, 2013 provides that “Nothing in sub-section (1) shall prejudice the power of the company to register, on receipt of an intimation of transmission of any right to securities by operation of law from any person to whom such right has been transmitted.”
‘Transmission’ means that on the death of the last holder of shares, there is an instantaneous transfer of ownership to the heirs by operation of law. It may be necessary to obtain a succession certificate or letters of administration, but the property is deemed to vest not on the date of grant of the certificate, but on the date of the death.
On the other hand, even though the transfer of shares under the IEPF Rules is taking place as a result of operation of law, i.e. under section 124 (6) of the Act, 2013, the transferee in this case, the IEPF Authority, is a mere custodial holder of shares till a legitimate claim is made by the original shareholder. This transfer is not in the nature of permanent vesting of property so as to make the IEPF a permanent owner of the shares but is only a custodial transfer. In fact, it is a transfer until it is reclaimed by the original shareholder.
Transmission does provide for permanent vesting of the property on the legal heirs unlike the transfer of shares to IEPF.
Clarification on the documents required
Even though the Circular has clarified that instead of issuing duplicate share certificates, companies may follow the transmission process, however, the documents required for such transfer has not been explicitly stated.
Generally transmission involves the following procedure:
• Application by the legal heir to the company for requesting transmission of the shares along with certain documents, so which generally includes:
o Copy of the death certificate;
o Probate or succession certificate;
o Specimen signature; etc.
In our view, transfer of physical shares to IEPF should not require any of the above documents except for the application which is required under Rule 6 (3) (d) (i) of the IEPF Rules. The said application can now be made by the authorised person requesting the company to convert the physical shares into demat shares and thereafter transfer it to the IEPF demat account.
(Pammy Jaiswal works as an Associate at Vinod Kothari and Co)