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INVESTOR EDUCATION AND PROTECTION FUND AUTHORITY

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INVESTOR EDUCATION AND PROTECTION FUND AUTHORITY
By: Mr. M. GOVINDARAJAN
March 6, 2018
  • Contents

Companies Act, 1956

Section 205C of the Companies Act, 1956 provided for the establishment of Investor Education and Protection Fund with effect from 13.12.2000.  For this purpose Investor Education and Protection Fund (Awareness and Protection of Investors) Rules, 2001 was framed.  But no Authority has been appointed for the purpose of administering the fund by the Companies Act, 1956.  Now the said Act has been repealed and its place Companies Act, 2013 has been enacted which provides for the constitution of the Investor Education and Protection Fund Authority.

Constitution of Authority

Section 125(5) of the Companies Act, 2013 provides that the Central Government shall constitute, by notification, an authority called as ‘Investor Education and Protection Fund Authority’ for administration of the investor education and protection fund.

Status of Authority

The Authority is a body corporate by the name ‘Investor Education and Protection Fund Authority’ having perpetual succession and a common seal with power to acquire, hold and dispose of property both moveable and immoveable, and to contract and shall, by the said name, sue or to be sued.

Transfer of assets, liabilities of the existing IEPF to the Authority

On and from the date of establishment of the Authority-

  • any reference to the existing IEPF in any law other than the rules or in any contract or other instrument shall be deemed to be as a reference to the Authority;
  • all properties and assets, movable and immovable, of, or belonging to, the existing IEPF, shall vest in the Authority;
  • all rights and liabilities of the existing IEPF shall be transferred to, and be the rights and liabilities of the Authority;
  • all debts, liabilities, obligation and liabilities incurred, all contracts entered into and all matters and things engaged to be done by, with or for the existing IEPF immediately before that date, for or in connection with the purpose of the said existing IEPF shall be deemed to have been incurred, entered into, or engaged to be done by, with or for, the Authority;
  • all sums of money due to the existing IEPF immediately before that date shall be deemed to be due to the Authority; and
  • all suits and other legal proceedings instituted or which could have been instituted by or against the existingIEPF, immediately before that date may be continued or may be instituted by or against the Authority.

Composition of Authority

The Authority shall consists of the following-

  • Chairperson – The Secretary, Ministry of Corporate Affairs shall be the ex-officio Chairperson of the Authority.
  • Six members;
  • Chief Executive Officer.

Members

The Central Government may appoint the following as the members of the Authority-

  • a person not below the rank of Executive Director to be nominated by Reserve Bank of India as ex-officio member;
  • a person not below the rank of Executive Director to be nominated by SEBI as ex-officio member;
  • four persons having special knowledge and experience of not less than 15 years in finance, management, accountancy or law with one person from each discipline and such person shall have special knowledge or professional experience, which shall in the opinion of the Central Government shall be useful to the Authority.

Tenure of members

The members shall hold office for a period of 3 years and shall be eligible for reappointment.  No member shall hold office for more than three terms.  A member shall be eligible for reappointment after expiration of cooling off period of three years after his term.  The member shall hold office for a period of 3 years or till attaining the age of 65 years whichever is earlier.

Termination of members

The Central Government shall have the right to terminate the services of a member at any time before the expiry of his tenure period, by giving him notice of not less than 3 months in writing for the following reasons-

  • if the member is or at any time has been adjudicated as insolvent;
  • if he is of unsound mind and stands so declared by a competent court;
  • has been convicted of an offence which, in the opinion of the Central Government involves a moral turpitude;
  • has, in the opinion of the Central Government, so abused his position as to render his continuation in office detrimental to the public interest.

No member shall be removed unless he has been given a reasonable opportunity of being heard in the matter.

Relinquishing office

A member shall have the right to relinquish his office at any time before the expiry of the tenure period by giving to the Central Government notice of not less than 3 months in writing.

Officers and employees

The Authority shall have such number of officers and other employees for rendering secretarial assistance and for its day to day functions.

Functions of Authority

The Authority shall have the duty to administer the Investor Education and Protection Fund for investor education and protection.    The general management of the affairs of the Authority shall vest in the Chief Executive Officer, who may exercise powers, which may be authorized by the Authority.

The functions of the Authority shall include the following-

  • The Authority may constitute permanent Committees for overseeing its functions.
  • Each Committee shall comprise two members, Chief Executive Officer and concerned functional head, who shall be the Secretary of the Committee.The Committee shall be headed by an ex-officio member.
  • The Committee may invite experts with special knowledge and expertise, as and when required to assist it on any specific issue.
  • The Authority may outsource, if required, work related to funds and shares management.

Functional Divisions of the Authority

The following are the functional divisions of the Authority-

  • Administration;
  • Investment/Funds Management;
  • Claims and Settlement;
  • Legal and Enforcement;
  • Investor Education and Protection;
  • Finance, Accounts and Audit.

Administration

The following are the functions of the administrative functional division-

  • to establish, equip, maintain and operate administrative functions as may be necessary or deemed expedient for fulfilling the objects of the fund;
  • authority and committees of Authority related matters.

Investment/Funds Management

The following are the functions of the Investment/Funds Management functional division-

  • to maintain funds standing to the credit of the Fund, investing the same in interest bearing account of any nationalized bank;
  • to open depository account of authority and transfer into the account securities of investor and transfer to investor account securities upon settlement of the claim.

Claims and Settlement

The following are the functions of the claims and settlement functional division-

  • to make refunds to eligible investors following due procedure in respect of claims lodged by investors;
  • to distribute disgorged amount as per the order of the court or the Authority;
  • to distribute disgorged amount in consultation with Legal and Enforcement Division to eligible and identified security holders who have suffered losses due to any wrong actions of any person in accordance with the order of Tribunal or order of Authority;

Legal and Enforcement

The following are the functions of Legal and Enforcement functional division-

  • to initiate of legal cases against non compliant companies or persons;
  • to handle disputes and legal cases arising out of claims or settlement or any other dispute;
  • to reimburse of funds from Fund for meeting legal expenses incurred by members, debenture holders or depositories as sanctioned by the Tribunal.

Investor Education and Protection

The following are the functions of Investor Education and Protection functional division-

  • to register associations or institutions or professional bodies or chambers of commerce and industry or other organizations engaged in investor education and protection activities;
  • to sanction grants to the registered entities for seminars, programs, projects or activities in the field of corporate governance, Investors’ Education and Protection including research activities;
  • to monitor the utilization of the grants to ensure the achievements of the objectives of the sanctioning of the grants;
  • to co-operate and collaborate with institutions engaged in Investor Education, Corporate Governance, awareness and protection activities;
  • to conduct on its own or in collaboration with entities engaged in Investor education and protection or academic institutions or other regulated entities such as stock exchanges, depositories, banks and mutual funds nationwide investors’ education and awareness programs including seminars and symposia;
  • to set up institutional arrangements or infrastructure for taking up programs, projects and action plans keeping in view the objectives and expenditure relating thereto, including research and training activities;
  • to publish and disseminate information for investors’ benefit and objects and achievements of the Fund;
  • to advise Central Government on the issues related to investors’ interest;
  • to sponsor specific studies or research or analysis for the development of capital market.

Finance, Accounts and Audit

The following are the functions of Finance, Accounts and Audit functional division-

  • to maintain accounts of inflow and outflow of funds;
  • to reconcile accounts of investors;
  • to prepare all accounting reports, audit work and annual report;
  • to submit returns to Government;
  • to prepare budget of authority and its monitoring;
  • to account for all claims of investor in respective accounts;
  • to prepare procedure for accounting of investors’ funds and securities.

Powers of Chairperson

The Chairperson may reallocate functions, merge or sub divide divisions as per administrative requirement.

Meetings of Authority and its committees          

The Authority and its Committees shall meet at such times and places as it may consider necessary.  The Authority and its Committees shall determine its own procedure for holding of meetings.  If the meeting is proposed to hold elsewhere than in New Delhi, the approval of the Chairperson of the Authority shall be obtained indicating the reasons thereof.  The Authority and the Committees shall meet at least once in a quarter and at least four such meetings shall be held in a financial year.  Not more than 120 days shall intervene between the consecutive meetings.

The following is the procedure for the conduct of meeting-

  • The meeting of the Authority shall be presided over by the Chairperson.
  • If the Chairperson is unable to attend a meeting for any reason, any other Member chose by the Members present from amongst themselves at the meeting shall preside over the meeting.
  • In case of difference of opinion on any question before the Authority, or any of its Committees, the views of the majority shall be taken as the final decision.
  • The quorum for the meeting shall be of more than 50% of the Members for the transaction of business at a meeting of the Authority.
  • Two members of a Committee shall constitute the quorum for the transaction of business at a meeting of the Committee.
  • A member, having pecuniary interest, direct or indirect in any manner that is brought up for consideration at a meeting of the Authority and its Committees, shall, as soon as possible after relevant circumstances have come to his knowledge, disclosure the nature of his interest at such meeting and such disclosure shall be recorded in the proceedings of the Authority and the Committees.The Member shall not take any part in any deliberation or decision of the Authority and its Committees with respect to that matter.

Vacancies etc., not to invalidate proceedings of Authority

No act or proceeding of the Authority and its Committees shall be invalid merely by reason of-

  • any vacancy in, or any defect in the constitution of the Authority and its Committees;
  • any defect in the appointment of a person acting as a Member of the Authority and its Committees;
  • any laches in the procedure of the Authority and its Committees not affecting the merits of the case.

Protection

No suit, prosecution or other legal proceedings shall lie against the Central Government or Authority or any officer of the Central Government or any member, officer or other employee of the Authority for anything, which is in good faith done or intended to be done under the rules.

Maintenance of records

The Authority shall maintain proper accounts and other relevant records as detailed below-

  • Register of Shares transferred under section 124 (6) of the Act;
  • Central Cash Book;
  • Company wise Ledger;
  • General Ledger;
  • Cashier’s Cash Book;
  • Bank Ledger;
  • Register of Assets;
  • Investment Register;
  • Claim Register;
  • Refund Register;
  • Suspense Register;
  • Documents Register;
  • Any other register or book as decided by the Authority.

The Authority shall prepare an annual statement of accounts in such forms as may be specified by the Central Government in consultation with Comptroller and Auditor General of India.

Audit

The accounts of the Authority shall be audited annually by the Internal Audit Party of the office of the Chief Comptroller of Accounts and Comptroller and Auditor General of India at such intervals.  Any expenditure incurred in connection with such audit shall be payable by the Authority to the Comptroller and Auditor General of India.

The C&AG or any other person appointed by him in connection with the audit of accounts of the Authority shall have the same rights and privileges and authority in connection with the audit as C&AG generally in connection with the audit of the Government accounts and, in particular, shall have the right to demand the production of books, accounts, connected vouchers and other documents and papers and to inspect any of the offices of the Authority.

The accounts of the Authority as certified by C&AG or any other person appointed by him in this behalf together with the audit report thereon shall be forwarded annually to the Central Government shall cause the same to be laid before each House of Parliament.

Returns and reports

The Authority shall furnish to the Central Government at such time and in such form and manner as may be specified or as the Central Government may direct, such returns and statements and such particulars with regard to its activity.

The Authority shall, submit within 180 days after the end of the financial year, submit to the Central Government a report in such form, as may be specified, giving a true and full account of its activities during the previous financial year.

 

By: Mr. M. GOVINDARAJAN - March 6, 2018

 

 

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