* IN THE HIGH COURT OF DELHI AT NEW DELHI

Decided on: 05.12.2017

+ W.P.(C) 10589/2017, C.M. APPL. 43341/2017, 43342/2017
43343/2017
INDIA AWAKE FOR TRANSPARENCY …. Petitioner
Through: Sh. R. Subramanian, Advocate.
versus
UNION OF INDIA REP. BY SECRETARY, MINISTRY OF
CORPORATE AFFAIRS AND ANR. …. Respondents

Through: Sh. Sanjay Jain, ASG with Sh. Dev. P.

Bhardwaj, CGSC with Ms. Sneh Suman, Sh. Kartik Rai,
Advocates.

Sh. Rakesh Tyagi, Director, Ministry of Corporate
Affairs.

CORAM:

HON’BLE MR. JUSTICE S. RAVINDRA BHAT
HON’BLE MR. JUSTICE SANJEEV SACHDEVA

MR. JUSTICE S. RAVINDRA BHAT

%

1. The petitioner claims that it has approached this Court, under Article
226 of the Constitution in public interest. It describes itself as a non-profit
company, “primarily focused on working in areas of governance and
efficient resource management, whether in the public or private sphere.” It
seeks directions for strict enforcement of the Investor Education and
Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules,
2016 [“the 2016 Rules”] by every company transferring shares to the second
respondent (the Investor Education and Protection Fund, hereafter described

W.P.(C) 10589/2017 Page 1 of 24
as “the Fund”) and ensure that officials transferring the shares are made
responsible for due certification of compliance with the Rules.

2. Referring to Section 205A of the (repealed) Companies Act, 1956, it is
submitted that previously, where companies were dealing with eventualities
whereby unpaid dividends accrued with them, that provision compelled them
(the companies) to designate a specific account as “Unpaid Dividend
Account” (UDA) and transfer such monies into it. The UDA marked such
amounts as separate and not belonging to or available with, such companies.
The Act also provided for transfer of funds from UDA to the Fund if no
payout were made for seven years.

3. It is submitted that the Companies Act, 2013 (hereafter “the 2013
Act”) not only retains the feature with respect to transfer of amounts from
the UDA of all companies to the Fund, but goes further, in that shares that
yield dividends, which remain unpaid for over seven (7) years, would be
transferred to the Fund, by virtue of operation of Section 124 (6). It is urged
that this radical change would mean that if for some reason shareholders are
unable to 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

W.P.(C) 10589/2017 Page 2 of 24
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
amendment”) and later, on 13.10.2017 (“second amendment”).

5. The petitioner then describes the Rules. It is submitted that Rule 3
describes what comprises the “Fund” and provides details as to which of the
amounts are to be credited to the Fund. This inter alia also includes accounts
to be remitted as prescribed under Section 125(2) of the Act. These amounts
are to be transferred within a period of thirty days of becoming due to the
Fund. It is stated that every company has to, within ninety days of holding its
Annual General Meeting (AGM) or the date on which it should have been
and every year thereafter, till the completion of seven years’ period, identify
the unclaimed amounts, as on the date of the AGM and separately furnish
and upload on its own website and also on the website of the IEPF Authority
or any other website as may be specified by the Government, a statement or
information through the relevant Forms.

6. Rule 6 provides the procedure to be followed by companies to ensure
the transfer of amount to the Fund. It lists the duties of the Company
Secretary of each company. According to Rule 6, no shares can be
transferred unless notice in that regard is given, or is deemed to be provided,
three months in advance, to the shareholders in the following manner:

W.P.(C) 10589/2017 Page 3 of 24

 Informing at the latest available address, the shareholder concerned
regarding transfer of shares three months before the due date of
transfer of shares;

 Publishing a notice in the leading newspaper in English and regional
language having wide circulation; and
 Furnishing details of such shareholders and shares due for transfer on
the company’s website giving details.

7. Rule 6 also establishes a detailed procedure for transferring physical
shares as well as where the shares are dealt with in a depository. It is also
urged that an important aspect from the shareholder’s point of view is that
her or his voting rights on shares transferred to the Fund remains frozen until
the rightful owner claims the shares.

8. The petitioner states, and in the course of hearing, learned counsel, Sh.
R. Subramanian, submitted that the validity of Section 124(6) of the
Companies Act, 2013 is not being questioned; yet, what is of concern is that
the lack of clarity in the Rules and amendments by the Circulars issued by
the Central Government, have resulted in confusion. It is 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

W.P.(C) 10589/2017 Page 4 of 24
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.

9. It was argued that these amendments enabled the shareholder to
approach the company with appropriate requests to reclaim their shares; the
public purpose was to notify such shareholders in the manner prescribed by
the Rules. It is argued that the date of vesting was further changed to
31.10.2017 by the second amendment which by Rule 6(1) extends the period
of vesting from 07.09.2016 to 31.05.2017, to a later date, i.e. 31.10.2017.
The further change made was by way of substitution of clause (d) with a new
Rule 6(3)(d), which mainly concerned itself with procedure. It is mainly
argued that there is complete lack of clarity with respect to the three month
period to be given to shareholders for the purpose of applying to claim their
shares from the respective companies before vesting. It is submitted that
unless there is a mandate to the companies with appropriate consequence, the
effect of 2013 Act and the Rules is that the shareholders would be deprived
of their valuable property without any intimation or notice. It is argued that
various companies are flagrantly violating the Act and the Rules – either in
ignorance or deliberately, and indicating that the vesting of shares would
take place on 30.11.2017. Such notices are provided by publication in the
website or notice in the public domain as late as in October barely giving the

W.P.(C) 10589/2017 Page 5 of 24
three-months mandated period. In this regard, the petition cites that its
volunteers completed a sample survey to study compliance with the Rules, of
25 randomly chosen companies and that only four had set out details
mandated or prescribed under the Act and Rules and that most of the other
companies, instead of displaying the names and folio numbers on their
websites, have obliged the shareholders to enter their names and folio
numbers to check if their shares were transferred, wholly in violation of the
Rules. It is urged that all these resulted in a hopeless situation for
shareholders who, upon subsequent transfer of their shares, would be
confronted with a herculean task of reclaiming them.

10. On the first date of hearing when the petition was listed, after it was
received on transfer from the bench of Hon’ble the Acting Chief Justice,
who did not wish to hear the matter, the Central Government was
represented by the Additional Solicitor General (ASG) on advance notice.

11. With consent of learned counsel, the matter 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,

W.P.(C) 10589/2017 Page 6 of 24
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 revised due date for
transfer/transmittal of shares shall be notified soon.

3. Companies, are advised to complete all formalities, as
laid down in the aforesaid Rules without waiting for the fresh
dates. Companies which have already published notice in
newspaper and send notices to the shareholders, need not give
the fresh notices again due to this extension.

4. This issues with the approval of the Competent
Authority.”

12. It is urged that the scheme of the Rules is such that by Rule 5(8), every
company within 90 days after holding of each Annual General Meeting
(AGM) has to identify and claim the amounts referred to in Section 125(2)
separately; the same has to be furnished and uploaded on its website and also
on the website of the Fund or any other website specified by the Central
Government. For the purposes of transfer originally, Rule 6(3) prescribed
that companies were to inform at the latest available address, all shareholders
concerned with respect to transfer of shares three months before the date of
transfer and also publish notices in the leading newspapers as well as provide
such information on their website. Realizing that it was difficult for
companies to comply with the Rules immediately, the first amendment was

W.P.(C) 10589/2017 Page 7 of 24
made on 28.02.2017. This also provided relief to a class of shareholders who
might have in one go or more than one year have encashed dividend
warrants within such seven years, such that their shares were not to be
transferred. The second proviso to Rule 6(1) postponed the date of transfer to
31.03.2017. The second amendment extended the date of transfer to
31.10.2017 and further stated that the transfer of shares by the companies
would be only transmission of shares. It was argued that the provisions of the
Act are adequate with respect to deviancy in that Section 124(7) provides
that if companies fail to comply with the requirements of the Section, they
would be punishable with fine that would be not less than ₹5 lakhs but which
may extend to ₹25 lakhs and every officer in default is punishable with fine
that is not less than ₹1 lakh but extendable upto ₹5 lakhs. It is stated by ASG
that in the event the Central Government notices any difficulty in the
implementation of Section 124(6) or the Rules, it would step in and take
suitable remedial action.

13. As is evident from the discussion, this 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.

W.P.(C) 10589/2017 Page 8 of 24

(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 any default is made in transferring the total amount
referred to in sub-section (1) or any part thereof to the Unpaid
Dividend Account of the company, it shall pay, from the date of
such default, interest on so much of the amount as has not been
transferred to the said account, at the rate of twelve per cent
per annum and the interest accruing on such amount shall
enure to the benefit of the member of the company in proportion
to the amount remaining unpaid to them.

(4) Any person claiming to be entitled to any money transferred
under sub-section (1) to the Unpaid Dividend Account of the
company may apply to the company for payment of the money
claimed.

(5)Any money transferred to the Unpaid Dividend Account of a
company in pursuance of this section which remains unpaid or
unclaimed for a period of seven years from the date of such
transfer shall be transferred by the company along with interest
accrued, if any, thereon to the Fund established under sub-
section (1) of section 125 and the company shall send a
statement in the prescribed form of the details of such transfer
to the authority which administers the said Fund and that
authority shall issue a receipt to the company as evidence of
such transfer.

(6) All shares in respect of which unpaid or unclaimed dividend
has been transferred under sub-section (5) shall also be
transferred by the company in the name of Investor Education
and Protection Fund along with a statement containing such
details as may be prescribed;

W.P.(C) 10589/2017 Page 9 of 24

Provided that any claimant of shares transferred above shall be
entitled to claim the transfer of shares from Investor Education
and Protection Fund in accordance with such procedure and on
submission of such documents as may be prescribed:
(7) If a company fails to comply with any of the requirements
of this section, the company shall be punishable with fine which
shall not be less than five lakh rupees but which may extend to
twenty-five lakh rupees and every officer of the company who is
in default shall be punishable with fine which shall not be less
than one lakh rupees but which may extend to five lakh
rupees.”

14. The Fund is created by Section 125. – it is established by the Central
Government; the various amounts to be credited to it are created in Section
125(2). Section 125(3) states that the Fund would be utilized entirely for the
refund of unclaimed 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

W.P.(C) 10589/2017 Page 10 of 24

(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

123.”

15. At the heart of the controversy in this case is the operationalistion of
the Section 124(6) which statutorily transfers shares – which are valuable
property – to the Fund in the eventuality of dividends lying unclaimed for
over seven years. What is of significance is that such shares are merely
transferred for safekeeping by the Fund and do not become the property nor
do they vest in the Central Government. Thus, the shareholder continues to
retain title but loses agency. The company concerned is relieved of the
responsibility of holding the shares or reflecting it in its list of shareholders.

At the same time, it is not as if the existence of such shares (which are to be
accounted for other purposes) is entirely obliterated. The only consequence
spelt out in Section 126 is transfer of dividends in relation to such shares to
the Fund and keeping in abeyance any offer of rights shares and any issue of
fully paid-up bonus shares. Proviso to Section 126 very carefully enacts that
claimants of shares so transferred “shall be entitled to claim transfer of
shares from Fund in accordance to such procedure and submission of such
documents such as may be prescribed.” In the opinion of this Court, the net
result of Section 124(6) is that whilst it introduces a new regime of not
merely transferring the amounts lying in the UDA, but also directs the
transfer of shares which yield unclaimed dividend for seven years or more; it
also enables the provision of a mechanism for reclamation of such shares.
This aspect is to be necessarily factored in to understand the mechanics of

W.P.(C) 10589/2017 Page 11 of 24
the transfer sought to be achieved through the Rules. Rule 6 underwent
changes twice. Quite correctly, the petitioner points out that the original Rule
6 had allowed some uncertainty and confusion. The said Rule, to the extent it
is relevant, reads as follows:

“6. Manner of transfer of shares under sub-section (6) of
section 124 to the Fund.- (1) The shares shall be credited to an
IEPF suspense account (on the name of the company) with one
of the depository participants as may be identified by the
Authority within a period of thirty days of such shares becoming
due to be transferred to the Fund:

Provided that, in case the beneficial owner has encashed any
dividend warrant during the last seven years, such shares shall
not be required to be transferred to the Fund even though some
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;

W.P.(C) 10589/2017 Page 12 of 24

(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 shares to the Fund:
Provided that the company shall furnish details of such
shares and unpaid dividend to the Authority in Form No.
IEPF 3 within thirty days from the end of financial year;

(c) For the purposes of effecting the transfer where the
shares are dealt with in a depository,-

(i) the Company Secretary or the person authorised by
the Board shall sign on behalf of such shareholders, the
delivery instruction slips of the depository participants
where the shareholders had their accounts for transfer in
favour of IEPF suspense account (name of the company);

(ii) on receipt of the delivery instruction slips, the
depository shall effect the transfer of shares in favour of
the Fund in its records.

(d) For the purposes of effecting the transfer 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 across the face 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;

W.P.(C) 10589/2017 Page 13 of 24

(iv) after issue of duplicate share certificates, the
Company Secretary or the person authorised by the
Board, shall sign the necessary Form No. SH 4 i.e.,
securities transfer Form as specified in the Companies
(Share Capital and Debentures) Rules, 2014, for
transferring the shares in favour of the Fund;

(v) on receipt of the duly filled transfer forms along with
the duplicate share certificates, the Board or its
Committee shall approve the transfer and thereafter the
transfer of shares shall be effected in favour of the Fund
in the records of the company.

(4) The company or depository, as the case may be, shall
preserve copies of the depository instruction slips,
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:-

W.P.(C) 10589/2017 Page 14 of 24

“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 opened by the Authority
for the said purpose, within a period of thirty days of such
shares becoming due to be transferred to the Fund:
Provided that, in case the beneficial owner has encashed any
dividend warrant during the last seven years, such shares shall
not be required to be transferred to the Fund even though some
dividend warrants may not have been encashed:

Provided further that in cases where the period of seven years
provided under sub-section (5) of section 124 has been
completed or being completed during the period from 7th
September, 2016 to 31st May, 2017, the due date of transfer of
such shares shall be deemed to be 31st May, 2017.

(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 while
transferring the shares, 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
informing the concerned that the names of such shareholders
and their folio number or DP ID – Client ID are available on
their website duly mentioning the website address.

(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 or where such shares are pledged or
hypothecated under the provisions of the Depositories Act, 1996

W.P.(C) 10589/2017 Page 15 of 24
or shares already been transferred under sub-rule (1) above,
the company shall not transfer such shares to the Fund:

Provided that the company shall furnish details of such shares
and unpaid dividend to the Authority in Form No. IEPF 3
within thirty days from the end of financial year.

(c) For the purposes of effecting the transfer, where the shares
are dealt with in a depository-

(i) the Company shall inform the depository by way of
corporate action, where the shareholders have their accounts
for transfer in favour of the Authority.

(ii) on receipt of such intimation, the depository shall effect the
transfer of shares in favour of DEMAT account of the Authority.

(d) For the purposes of effecting the transfer 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.

W.P.(C) 10589/2017 Page 16 of 24

(4) The company shall make such transfers through corporate
action and shall preserve copies for its records.

(5) While effecting such transfer, the company shall send a
statement to the Authority 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.”

17. The second amendment of 13.10.2017 which came into force
immediately, substituted the second proviso by extending the date of transfer
to 31.10.2017 and added the third proviso in the following terms:

“(I) in sub-rule (1),–

(a) for the second proviso, the following proviso shall be
substituted, namely:–

“Provided further that in cases where the period of seven years
provided under sub-section (5) of section 124 has been
completed or being completed during the period from 7th
September, 2016 to 31st October, 2017, the due date of transfer
of such shares shall be deemed to be 31st October, 2017.”

(b) after the second proviso, the following proviso shall be
inserted, namely:–

“Provided further that transfer of shares by the companies to
the Fund shall be deemed to be transmission of shares and the
procedure to be followed for transmission of shares shall be

W.P.(C) 10589/2017 Page 17 of 24
followed by the companies while transferring the shares to the
fund.”.

18. In Rule 6(3), clause (d) was substituted in the following terms:

“(II) in sub-rule(3), for clause (d), the following clause shall be
substituted, namely;–

„(d) For the purposes of effecting the transfer shares held in
physical form-

(i) the Company Secretary or the person authorised by the
Board shall make an application, on behalf of the concerned
shareholder, to the company, for issue of a new share
certificate;

(ii) on receipt of the application under clause (a), a new share
certificate for each such shareholder shall be issued and it shall
be stated on the face of the certificate that “Issued in lieu of
share certificate No….. for the purpose of transfer to IEPF”
and the same be recorded in the register maintained for the
purpose;

(iii) particulars 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

W.P.(C) 10589/2017 Page 18 of 24
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 05.09.2016. This brought in uncertainty and
inchoateness because in the absence of a terminus quo as it were, or a
prescribed cut-off date, the companies were at liberty to pick any date
without any objective standard. Realizing this, the first amendment
introduced the cut-off date as 31.05.2016 and further recognized that the
class of shareholders who might have approached the company in between
or even encashed dividends needed to be protected. Therefore, appropriately,
first and second provisos were introduced to Rule 6(1). For whatever
reasons, perhaps on account of the difficulties experienced by several
companies, the Rules were again amended and the date of transfer shifted to
31.10.2017. Here again, the second proviso was appropriately amended to
reflect the date changed. The third proviso clarifying beyond doubt that the
transfer of shares would be deemed to be transmission and the procedure for
transmission was to be applicable was prescribed. The changes brought
about, especially by the second amendment to the Rules, in the opinion of
the Court, have lent some uncertainty. The samples of advertisements issued
by the various companies after the Rules were notified on 05.09.2016
indicated that the three month period provided was apparently not adhered

W.P.(C) 10589/2017 Page 19 of 24
to, at least in the case of five of them. The notices were published in
newspapers etc. in the first week or mid-November with the further
intimation that the date of transfer would be 30.11.2017. The petitioner has
relied upon and produced the circular issued by the Central Ministry of
Corporate Affairs on 16.10.2017, which in the relevant part reads as follows:

“No.11/06/2017-IEPF
Government of India
Ministry of Corporate Affairs

5th Floor, „A‟ Wing
Shastri Bhawan, Dr. R.P. Road,
New Delhi-110001
Dated : 16.10.2017

To
All Stakeholders
Nodal Officers (IEPF) of Concerned Companies
All Regional Directors and Registrar of Companies
MD CEO NSDL
MD CEO NSDL

Subject: Transfer of Shares to IEPF Authority

Pursuant to second proviso to Rule 6 of Investor Education and
Protection Fund Authority
(Accounting, Audit, Transfer and Refund) Rules, 2016 as
amended
time to time, wherein the seven years period provided under
sub-section (5) of section 124 is completed for
unpaid/unclaimed dividends during September 7, 2016 to
October 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

W.P.(C) 10589/2017 Page 20 of 24
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 are being
transferred to IEPF‟s demat accounts with PNB or SBI CAP
shall be provided by the companies to NSDL or CDSL
respectively
as per the prescribed format by the concerned depository.

5. The Ministry of Corporate Affairs has held separate
discussions with NSDL and CDSL during which they have
agreed to levy reduced charges for account maintenance and
record keeping pertaining to shares transferred to the demat
accounts of IEPF Authority. A Memorandum of Understanding
(MOU) to the effect is being finalized with the two depositories
and the same will also be uploaded on website www.iepf.gov.in
on finalization. NSDL and CDSL shall, based on these
discussions, separately notify the charges, which shall not be

W.P.(C) 10589/2017 Page 21 of 24
more than those finalized in the MOU, NSDL and CDSL are
required to allow the servies with immediate effect.

6. Any cash benefit accuring on account of shares transferred
to IEPF such as dividend, proceeds realized on account of
delisting of equity shares of the company, amount entitled on
behalf of security holder if the company is being wound up as
per Rule 6. Sub-rule (10), (11) and (12) of Investor Education
and Protection Fund Authority (Accounting, Audit, Transfer
and Refund) Rules, 2016, shall be transferred by coampnies to
bank account openined by the Authority with Punjab National
Bank, Sansad Marg, New Delhi, which has been linked to
demat accounts mentioned at para 2 above.”

21. The petitioner’s complaint is that even when the date of vesting is said
to be 31.10.2017, the authorities continued to indicate changes with the
result that companies would not be accountable for the mandate of Rule 6(1),
i.e. three months notice. This Court is of the opinion that Rule 6(3) has not
undergone any change. Its clause (a) retains its original character which
means that every company had to necessary give three months clear notice to
all concerned about the date of transfer. Undoubtedly, the absence of any
date in the original Rules might have led to some uncertainty, even
confusion. However, the first amendment clarified that and fixed the date as
31.05.2017. It also gave some manner of relief to those who had approached
the companies or encashed dividends in the interregnum between 07.09.2016
and 31.05.2017. The same spirit was continued in the second amendment
which merely extended the date of transfer. All this meant that at least 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

W.P.(C) 10589/2017 Page 22 of 24
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 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

W.P.(C) 10589/2017 Page 23 of 24
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.

24. It is imperative that the Central Government gives publicity to the
transfer of shares, by virtue of the provisions (not of individual companies)
to inform the public, and ensures a simple as well as compact form with
attendant procedure is notified, for reclaiming them.

25. In the light of the above, this Court is of the opinion that no orders or
directions of the kind sought for by the petitioner are necessary; the writ
petition is therefore, dismissed.

S. RAVINDRA BHAT
(JUDGE)

SANJEEV SACHDEVA
(JUDGE)
DECEMBER 5, 2017

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