Companies Act Section 125 — Investor Education and Protection Fund

CHAPTER VIII DECLARATION AND PAYMENT OF DIVIDEND

Commercial / Corporate

Summary

Sub-section (1) requires the Central Government to set up a fund called the Investor Education and Protection Fund.

Sub-section (2) lists the amounts that must be credited to the Fund. Under clause (a), this includes grants given by the Central Government after Parliament approves them by law. Under clause (b), it includes donations from the Central Government, State Governments, companies, or any other institution. Under clause (c), it includes amounts from the Unpaid Dividend Account of companies that are transferred to the Fund under sub-section (5) of section 124. Under clause (d), it includes amounts in the general revenue account of the Central Government that were transferred there under sub-section (5) of section 205A of the Companies Act, 1956, as it stood before the Companies (Amendment) Act, 1999, and that remained unpaid or unclaimed when this Act came into force. Under clause (e), it includes amounts already lying in the Investor Education and Protection Fund under section 205C of the Companies Act, 1956. Under clause (f), it includes interest or other income received from investments made from the Fund. Under clause (g), it includes amounts received under sub-section (4) of section 38. Under clause (h), it includes application money received by companies for allotment of securities that is due for refund. Under clause (i), it includes matured deposits with companies other than banking companies. Under clause (j), it includes matured debentures with companies. Under clause (k), it includes interest accrued on the amounts referred to in clauses (h) to (j). Under clause (l), it includes sale proceeds of fractional shares arising from bonus shares, merger, or amalgamation for seven or more years. Under clause (m), it includes redemption amounts of preference shares that remain unpaid or unclaimed for seven or more years. Under clause (n), it includes any other amount as may be prescribed. The proviso to this sub-section states that amounts referred to in clauses (h) to (j) will not form part of the Fund unless they have remained unclaimed and unpaid for a period of seven years from the date they became due for payment.

Sub-section (3) specifies the purposes for which the Fund shall be utilised. Under clause (a), it is for refunds of unclaimed dividends, matured deposits, matured debentures, application money due for refund, and interest on these. Under clause (b), it is for promoting investors' education, awareness, and protection. Under clause (c), it is for distributing any disgorged amount among eligible and identifiable applicants for shares or debentures, shareholders, debenture-holders, or depositors who have suffered losses due to wrong actions by any person, in accordance with orders made by the Court that ordered disgorgement. Under clause (d), it is for reimbursing legal expenses incurred in pursuing class action suits under sections 37 and 245 by members, debenture-holders, or depositors, as sanctioned by the Tribunal. Under clause (e), it is for any other incidental purpose, in accordance with rules as may be prescribed. The proviso to this sub-section states that a person whose amounts were transferred to the Investor Education and Protection Fund under clauses (a) to (d) of sub-section (2) of section 205C, after the expiry of seven years as per the Companies Act, 1956, is entitled to get a refund out of the Fund for such claims in accordance with rules made under this section. The Explanation clarifies that the disgorged amount refers to the amount received through disgorgement or disposal of securities.

Sub-section (4) states that any person claiming to be entitled to an amount referred to in sub-section (2) may apply to the authority constituted under sub-section (5) for payment of the money claimed.

Sub-section (5) requires the Central Government to constitute, by notification, an authority for administration of the Fund, consisting of a chairperson, other members not exceeding seven, and a chief executive officer, as the Central Government may appoint.

Sub-section (6) states that the manner of administration of the Fund, appointment of chairperson, members and chief executive officer, and holding of meetings of the authority shall be in accordance with rules as may be prescribed.

Sub-section (7) allows the Central Government to provide the authority with offices, officers, employees, and other resources in accordance with rules as may be prescribed.

Sub-section (8) requires the authority to administer the Fund and maintain separate accounts and other relevant records in relation to the Fund in such form as may be prescribed, after consultation with the Comptroller and Auditor-General of India.

Sub-section (9) states that the authority constituted under sub-section (5) is competent to spend money out of the Fund for carrying out the objects specified in sub-section (3).

Sub-section (10) requires the accounts of the Fund to be audited by the Comptroller and Auditor-General of India at such intervals as may be specified by him, and the audited accounts together with the audit report shall be forwarded annually by the authority to the Central Government.

Sub-section (11) requires the authority to prepare, in such form and at such time for each financial year as may be prescribed, its annual report giving a full account of its activities during the financial year, and forward a copy to the Central Government. The Central Government shall cause the annual report and the audit report given by the Comptroller and Auditor-General of India to be laid before each House of Parliament.

Official Text

(1) The Central Government shall establish a Fund to be called the Investor Education and Protection Fund (herein referred to as the Fund).

(2) There shall be credited to the Fund—

(a) the amount given by the Central Government by way of grants after due appropriation made by Parliament by law in this behalf for being utilised for the purposes of the Fund;

(b) donations given to the Fund by the Central Government, State Governments, companies or any other institution for the purposes of the Fund;

(c) the amount in the Unpaid Dividend Account of companies transferred to the Fund under sub-section (5) of section 124;

(d) the amount in the general revenue account of the Central Government which had been transferred to that account under sub-section (5) of section 205A of the Companies Act, 1956 (1 of 1956), as it stood immediately before the commencement of the Companies (Amendment) Act, 1999 (21 of 1999), and remaining unpaid or unclaimed on the commencement of this Act;

(e) the amount lying in the Investor Education and Protection Fund under section 205C of the Companies Act, 1956 (1 of 1956);

(f) the interest or other income received out of investments made from the Fund;

(g) the amount received under sub-section (4) of section 38;

(h) the application money received by companies for allotment of any securities and due for refund;

(i) matured deposits with companies other than banking companies;

(j) matured debentures with companies;

(k) interest accrued on the amounts referred to in clauses

(h) to (j);

(l) sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for seven or more years;

(m) redemption amount of preference shares remaining unpaid or unclaimed for seven or more years; and

(n) such other amount as may be prescribed:

Provided that no such amount referred to in clauses

(h) to

(j) shall form part of the Fund unless such amount has remained unclaimed and unpaid for a period of seven years from the date it became due for payment.

(3) The Fund shall be utilised for—

(a) the refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon;

(b) promotion of investors’ education, awareness and protection;

(c) distribution of any disgorged amount among eligible and identifiable applicants for shares or debentures, shareholders, debenture-holders or depositors who have suffered losses due to wrong actions by any person, in accordance with the orders made by the Court which had ordered disgorgement;

(d) reimbursement of legal expenses incurred in pursuing class action suits under sections 37 and 245 by members, debenture-holders or depositors as may be sanctioned by the Tribunal; and

(e) any other purpose incidental thereto, in accordance with such rules as may be prescribed:

Provided that the person whose amounts referred to in clauses

(a) to

(d) of sub-section (2) of section 205C transferred to Investor Education and Protection Fund, after the expiry of the period of seven years as per provisions of the Companies Act, 1956 (1 of 1956), shall be entitled to get refund out of the Fund in respect of such claims in accordance with rules made under this section.

Explanation.—The disgorged amount refers to the amount received through disgorgement or disposal of securities.

(4) Any person claiming to be entitled to the amount referred in sub-section (2) may apply to the authority constituted under sub-section (5) for the payment of the money claimed.

(5) The Central Government shall constitute, by notification, an authority for administration of the Fund consisting of a chairperson and such other members, not exceeding seven and a chief executive officer, as the Central Government may appoint.

(6) The manner of administration of the Fund, appointment of chairperson, members and chief executive officer, holding of meetings of the authority shall be in accordance with such rules as may be prescribed.

(7) The Central Government may provide to the authority such offices, officers, employees and other resources in accordance with such rules as may be prescribed.

(8) The authority shall administer the Fund and maintain separate accounts and other relevant records in relation to the Fund in such form as may be prescribed after consultation with the Comptroller and Auditor-General of India.

(9) It shall be competent for the authority constituted under sub-section (5) to spend money out of the Fund for carrying out the objects specified in sub-section (3).

(10) The accounts of the Fund shall be audited by the Comptroller and Auditor-General of India at such intervals as may be specified by him and such audited accounts together with the audit report thereon shall be forwarded annually by the authority to the Central Government.

(11) The authority shall prepare in such form and at such time for each financial year as may be prescribed its annual report giving a full account of its activities during the financial year and forward a copy thereof to the Central Government and the Central Government shall cause the annual report and the audit report given by the Comptroller and Auditor-General of India to be laid before each House of Parliament.