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Understand Procedure of

Transferring Unpaid and


Unclaimed Dividend Amount to
IEPF
The companies have several cases where dividend payment has to be kept in
abeyance due to issues pertaining to ownership dispute, court injunction orders,
objections from transferor etc.
Only the registered holders of shares are
entitled to Dividend.
Dividend should be paid (i) in respect of shares held in electronic form, to those persons
whose names appear as beneficial owners in the statement(s) furnished by the Depository
(ies) as on the close of the market day prior to book closure or, in the case of interim
dividend, on the record date; (ii) in respect of shares held in physical form, to those
Shareholders whose names appear on the companys register of members after giving
effect to all valid share transfers in physical form lodged with the company before the date
of book closure or, in the case of Interim Dividend, on the record date; and (iii) in respect
of share warrants, to the holders of such warrants.
Dividend should be paid within thirty days
of declaration.
The amount of dividend after deducting tax at source, if applicable, should be deposited in a separate bank account
within five days from the date of declaration of dividend. Dividend should be paid out of such bank account within
thirty days of declaration.
The amount of dividend in respect of shares for which an instrument of transfer has been tendered to the company
but which have not been registered for any valid reason should be transferred to Unpaid Dividend Account.
If a member authorizes the company in writing to pay the dividend to the transferee specified in the instrument of
transfer, the company should act upon such authorization. However, in the case of shares which have not been
transferred because the ownership thereof is in dispute, or where attachment/prohibitory orders have been passed by
a court or statutory authority, dividend should be held in abeyance by transferring to the Unpaid Dividend Account.
Unpaid Dividend
The amount of dividend which remains unpaid or unclaimed after thirty days from the date of declaration should be
transferred to a special dividend account, to be called Unpaid Dividend Account of the company, within seven
days from the date of expiry of the thirty days period provided for payment of dividend.
The company should maintain the details of unpaid or unclaimed dividend and reconcile the amounts thereof with
the concerned bankers, periodically.
Any amount in the Unpaid Dividend Account of the company which remains unclaimed and unpaid for a period of
seven years from the date of transfer of such amount to the Unpaid Dividend Account should be transferred to the
Investor Education and Protection Fund. Any transfer to the Investor Education and Protection Fund should be
made within thirty days of the expiry of seven years from the date of transfer to the Unpaid/Unclaimed Dividend
Account.
Before transferring any amount to the Investor Education and Protection Fund, the company should give individual
intimation to the members in respect of whose unclaimed dividend the amount is being transferred, at least six
months before the due date of such transfer.
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After the expiry of the period of seven years from the date from which unclaimed and unpaid dividends were
transferred to the Unpaid Dividend Account, no claims shall lie against the Fund or the company in respect of any
such amounts. Hence, the company should intimate the concerned members individually of the amount of dividend
remaining unclaimed which is liable to be transferred to the Investor Education and Protection Fund and advising
the member to claim such amount of dividend from the company before such transfer.
In terms of Section 206, dividend in respect of a share has to be paid to the registered holder of the share or to his
order or to his bankers. However, where the registered shareholder has authorized the company, in writing, to pay
the dividend to the transferee, as specified in the instrument of transfer, the company should act upon such
authorization as permitted under Section 206A.
Dividend is payable to the shareholder whose name appears in the register of members on the relevant date even if,
prior to that date, he has sold the shares but the transfer deed in respect thereof has not been lodged with the
company [Chunilal Kuhshaldash Patel v. HK Adhyaru, AIR 1956 SC 655 26 Com. Cases 168].
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Section 41(3) provides that every person holding equity shares and whose name is entered as beneficial owner in
the records of the depository shall be deemed to be a member of the company.
In terms of Section 206-A, where any instrument of transfer of shares has been delivered to a company for
registration and the transfer of such shares has not been registered by the company, it shall transfer the dividend in
relation to such shares to the special account referred to in Section 205-A, viz., Unpaid/Unclaimed Dividend
Account, unless the company is authorised in writing by the registered holder of such shares to pay such dividend to
the transferee specified in the instrument of transfer.
The instrument of transfer so lodged with the company should be a valid instrument, duly stamped and executed and
accompanied by the share certificate(s). In case the instrument of transfer is invalid, the company is not required to
transfer the dividend in relation to such shares to the Unpaid/Unclaimed Dividend Account and hence should pay
the dividend to the transferor whose name appears in the register of members.
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In S V. Nagarajan v. The Lakshmi Vilas Bank Ltd and another (1997)4 Comp L J 112 (CLB), it was held that where
the company had refused the transfer on valid grounds, the registration was not pending.
In section 206A, so far as it relates to dividend, it is stipulated to-
a) transfer the dividend in relation to such shares to the special account referred to in section 205A unless the
company is authorized by the registered holder of such share 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 or rights shares and any issue of fully paid-up bonus
shares. It is pertinent to note that for keeping in abeyance, only right shares or bonus shares are mentioned, not the
unpaid dividend. Also, as per section 205A, any money transferred by the company to the unpaid dividend account
and remaining unclaimed for a period of seven years from the date of such transfer shall be transferred to a fund
called The Investor Education and Protection Fund set up by the Central Government. No claims shall lie against
the fund or the company in respect of amount so transferred.
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DCA Circular No 6/2004 dated 10.8.2004 also clarifies that all amounts transferred to the unpaid dividend account
of company on or after 30th October, 1995 or which have remained unpaid or unclaimed for a period of seven years
from the date of such transfer should be transferred to the Investor Education and Protection Fund together with
interest accrued thereon, unless they have already been transferred to the general revenue account of the Central
Government prior to the enactment of the Companies (Amendment) Act, 1999.
However, In CR Desai and Others v. ROC and Others (1999) 95 Comp. Cases 138: (1998) 4Comp L J 463 (AP), it
was held that where the company had not registered the shares in favour of the transferee on the advice of the
solicitors, the transferee was entitled not only to the dividend for all the years during which it was kept in abeyance
but also to the interest accrued thereon.
Conclusion
The companies shall transfer the amount of unpaid dividend to the unpaid
dividend account as stipulated in section 205A and after the expiry of seven
years, the balance of unpaid dividend for particular year under reference should
be transferred to IEPF. There is no provision for any eventuality or contingency in
the provision for transfer of such unpaid or unclaimed dividend to IEPF. However,
this could be held back only on specific directions from any Court or Tribunal or
Consumer Forum to that effect.

In case there is a dispute regarding shares on which dividend is payable, the


company should transfer the amount of such dividend to the Investor Education
and Protection Fund after the expiry of seven years from the date of declaration of
dividend, unless a court order provides otherwise.
Contact

LetsDemat
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Estate, Goregaon East,
Mumbai, Maharashtra
400063, India