The finance ministry is considering making amendments to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, which governs public sector banks (PSBs). These amendments aim to address the transfer of unclaimed shares to the Investor Education and Protection Fund (IEPF) when dividends of such shares remain unclaimed by investors for seven consecutive years. Currently, the act allows the transfer of unclaimed dividends to the IEPF, but it does not mention provisions for transferring unclaimed shares. The proposed amendment seeks to rectify this omission and align the provisions of the act with those prescribed under the Companies Act, 2013.
Purpose of the Investor Education and Protection Fund (IEPF)
The IEPF was established to promote investor awareness and protect their interests. It serves as a repository for unclaimed dividends and shares, which can be easily claimed by investors by submitting the required documents and following the verification process.
Transfer of Funds to IEPF
According to the latest annual report of the IEPF, companies transferred Rs 446 crore to the fund in the year 2021-22. The cumulative balance available with the IEPF by the end of 2021-22 is Rs 5,262 crore. Private companies, including private banks, already transfer both unclaimed dividends and shares to the IEPF.
Objectives of the Proposed Amendment
Experts believe that the primary objective of the proposed amendment is to align the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, with the requirements prescribed under the Companies Act, 2013. This amendment aims to harmonize regulations and ensure consistency across different statutes governing financial institutions. It enhances transparency and accountability in the management of unclaimed funds, fostering investor confidence and trust in the banking system.
Legal Principles and Systematic Approach
The incorporation of a seven-year period for the transfer of unclaimed dividends and shares is consistent with established legal principles, such as those outlined in Section 108 of the Indian Evidence Act, 1872. This provision shifts the burden of proving a person’s existence to the claimant after a specified period of absence, ensuring a fair and systematic approach to managing unclaimed assets.
Overall, the proposed amendment aims to improve regulatory practices, reduce compliance burdens, and enhance transparency in the banking system. It reflects the government’s commitment to providing ease of business and aligning regulations across different subjects and statutes.
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