Unclaimed dividends: Introduction to the concept and the process of claiming them!

Procedure for claiming dividends entitled to the deceased person: In an event of the legal successor of the deceased person needs to claim dividends entitled to the deceased person

A dividend is a portion of a company’s profit that is distributed to its shareholders. The Board of Directors determines and declares the dividend per share. The final dividend is announced at the end of the fiscal year and interim dividends are announced quarterly or semi-annually. Dividends are paid on the prescribed dates. However, for some reason the dividends remain unclaimed i.e, it is paid by the company but not yet claimed or availed by the shareholder is known as an unclaimed dividend.

Dividends remain unclaimed on account of multiple reasons such as address change and bank account details mismatch among others. In this article, we help you to understand the reason for unclaimed dividends and the process to claim the same.

First of all, let us understand why there was a need to write this article.

As per the data revealed by India’s oldest stock exchange BSE, as many as 4060 shareholders have not claimed their final dividend distributed for FY22 as on dated August 17, 2022.  

How does the calculation of unclaimed dividend is accounted for by the company?

Unclaimed dividend is shown under the liability side of the balance sheet. As unclaimed must be paid by the company as and when they are demanded, and thus constitute a liability for the company. It is a current liability as it is usually due within 12 months as a result it is recorded as current liabilities and when unpaid dividends are paid, the current it is cleared from the current liabilities account.

But why are dividends unclaimed? 

There are several reasons that the dividend distributed by a company might remain unclaimed which include in case of the demise of the shareholder; if his/her bank account is closed and the nominee is not selected and other to mention is a mismatch of name in the bank account.

Claiming unclaimed dividend from IEPF

As soon as a company declares a dividend, it needs to distribute the same in 30 days and a grace period of seven days is given so the portion that remains unclaimed can be availed by the investor, post which the amount is supposed to be transferred to a bank account called Unpaid Dividend account to be opened by the company. After this process, the company publishes a list of shareholders and the unclaimed amount.

Amounts transferred to the company’s unpaid dividends account and not paid or claimed for more than 7 years will be transferred to the Investor Education Protection Fund (IEPF) along with accrued interest. The company then sends a statement in Form IEPF-1 to the IEPF Authority with the details of such transfer. The Authority will then take control of the funds and issue a receipt to the company as proof of such transfer.

A complete process for recovering such dividends from the IEPF is outlined in Rule 7 of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer, and Refund) Rules, 2016.

Procedure for claiming the unclaimed dividend when it lies in an unpaid dividend account:

 In case when the amount is in the unpaid dividend account and a person claims to be entitled to it, he/she may apply to the company to receive the same. However, to receive the unclaimed dividend from the company’s unpaid dividend account, a request letter needs to be sent to the company’s Registrar and Transfer Agent (RTA) which contain details such as depository participant (DP) ID, Client ID along with this the period of which dividend wasn’t received. Thereafter, RTA verifies it and once it is verified the unclaimed amount is paid to the claimant.

Procedure for claiming Dividend from IEPF Authority

Shareholders of the Company, whose shares, unclaimed or unpaid dividend amount has been transferred by the Company to IEPF Authority pursuant to Section 124 of the Companies Act, 2013 read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, may claim unclaimed dividend amount from IEPF Authority.

Step 1: The Shareholder is to contact the Company/Registrar and Transfer Agent of the Company, TSR Darashaw Limited and obtain details of year-wise dividend entitlement and shares transferred to IEPF Authority before proceeding with.

Step 2: The shareholder is to visit the website of the IEPF Authority (http://www.iepf.gov.in/IEPF/refund.html), and download Form IEPF –5. Shareholders are to fill in the online application and upload Form IEPF-5 on the website of the IEPF Authority.

Step 3: The shareholder is to take print of the e-form IEPF – 5 and submit the original application with the required documents duly self-attested (including the joint holder) to the Registered office of the company.

Step 4: Company will verify the details of the claim and various documents submitted by the shareholder and submit the original documents with enclosures received from the shareholder/claimant with Verification Report to IEPF Authority.

Step 5: Based on Verification Report and the documents submitted by the company, IEPF Authority, would:

i) Approve the claim,

ii) Ask the shareholder to resubmit the required documents in case of any discrepancy.

Step 6: In case IEPF Authority requests the shareholder to resubmit any documents, shareholders are to forward the required documents to the Nodal Officer. On receipt of the revised documents from the shareholder, Nodal Officer would forward the revised Verification Report to IEPF Authority for settlement of the claim of the shareholder In case the claim is rejected by the IEPF Authority, the shareholder is to follow Steps 1-5 stated above.

Procedure for claiming dividends entitled to the deceased person:

In an event of the legal successor of the deceased person needs to claim dividends entitled to the deceased person, documents such as a notarized copy of the death certificate, notarised succession certificate and No Objection Certificate from another holder, Indemnity Bond for Transmission, must be submitted.

When then the reason for the unclaimed dividend is changed in the bank account:

Where there is a change in the bank account, it needs to be updated with the RTA by the shareholder.

Hope this helps you to understand the process of unclaimed dividends. Your comments are always welcome and keep us motivated.