Shares of significant beneficial owners (SBOs) once transferred to the Investor Education and Protection Fund (IEPF) are not allowed to be claimed back, according to the latest amendment made to the IEPF rules by the corporate affairs ministry.
An SBO is a person holding a beneficial interest of at least 10 per cent whether acting alone, together or through one or more individuals or trust, in a company. Section 90 of the Companies Act requires an SBO to make a declaration to the company specifying the nature of his/her interest and other essential particulars within the permitted time frame.
The companies are also required to identify the existence of SBOs. If any SBO fails to give the information or information is not satisfactory, the concerned company can approach NCLT for imposition of restrictions with regard to transfer of interest, suspension of all rights attached to the shares.
Once such a restriction is imposed by the NCLT and no application is made by the shareholder or the SBO within one year of such an order, such shares are to be transferred to the IEPF.
“The voting rights on shares transferred to the IEPF Fund shall remain frozen. However, for the purpose of the SEBI (SAST) Regulations, 2011, the shares which have been transferred to the IEPF Authority shall not be excluded while calculating the total voting rights,” said Ankit Singhi, partner, Corporate Professionals.
IEPF can now, along with the unclaimed dividends and the equity shares for which dividends are not claimed for seven years, also hold shares of SBOs in default.
“The provisions relating to transfer of these shares to IEPF were introduced in November 2019 but corresponding changes were not made in IEPF Authority - Accounting, Audit, Transfer and Refund Rules, 2016. This irregularity is now corrected,” said Harvinder Singh, partner, DSK Legal.