The main legal point established in the judgment is that Section 124(6) of the Companies Act, 2013 does not result in a statutory vesting of any property; it merely transfers shares in companies which have yielded dividends for seven years that have not been claimed to the Fund, which then holds them as a custodian. The judgment also emphasizes the need for the Central Government to devise appropriate procedures to enable shareholders to reclaim their shares and highlights the ongoing nature of the transfer of such shares by companies.

S. RAVINDRA BHAT, J.

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 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 Referring to Section 205A of the (repealed) Companies Act, 1956, it is submitted that previously, where companies were dealing with eventualities whereby unpaid dividends accrued with them, that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 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 d