A company that has declared a dividend is obligated to pay unclaimed dividends. However, if a dividend remains unclaimed for more than seven years, the company may transfer it to the Investor Education and Protection Fund Authority (IEPF), which falls under the jurisdiction of the Ministry of Corporate Affairs.
Unclaimed dividends are sums of money owed to shareholders that have not been claimed for various reasons, such as outdated contact information or neglect. In this article, we will dive into what unclaimed dividends are, provide examples to illustrate the concept, and guide you through the process of checking for and reclaiming these dividends. We'll also explore the implications of unclaimed dividends for both companies and shareholders, and discuss the steps companies take to manage and distribute these funds. By the end of this article, you'll have a comprehensive understanding of how unclaimed dividends work and how you can ensure you're not missing out on potential earnings.
What is an unclaimed dividend?
Unclaimed dividends refer to dividend payments that remain uncollected by shareholders following their declaration and attempted distribution by companies. These funds arise when shareholders fail to claim their dividends due to various reasons, such as outdated contact information, forgotten investments, or dormant accounts.
There can be various reasons why dividends remain unclaimed. Some of these include:
- The registered address of the shareholder has changed and has not been updated.
- Bank account details to which the dividend has to be sent have been changed or not updated.
- Death of the primary holder without any details of nominees or inheritors.
- Some shareholders are unaware that the dividend was declared, while others may forget to claim.
Example of unclaimed dividend
Consider a scenario where a shareholder of company ‘X’, Mr. A, has not claimed his dividends declared for the last several years. Notifications were sent to Mr. A via mail, but they could not reach him due to an outdated address. These dividends kept accumulating over the years and remained uncollected in the company’s financial records.
The above is a fairly common scenario of unclaimed dividends, especially for large corporations with crores lying in unclaimed dividends. This is because they usually have many shareholders who might simply not be reachable due to changes in the last known contact information.
How do you check for unclaimed dividends?
Here is a step-by-step guide to check if you have any outstanding dividends left to be claimed:
Step 1: You can directly visit the website of the company whose dividends you think have not been claimed by you. An alternative is to visit the Investor Education and Protection Fund (IEPF) website—a government initiative to protect investor interests.
Step 2: On the company website, go to the investor relations tab or shareholder services section that will give you the information regarding dividend details. Alternatively, on the IEPF website, you can enter the Client ID/Account Number to view unclaimed dividends.
Step 3: Under the investor relations tab or shareholder services section, you will find a section for unclaimed dividends dedicated to dividends declared but not claimed. On the IEPF website, select the name of the entry that matches your details.
Step 4: On clicking ‘Unclaimed Dividends’, you will be prompted to enter specific details like your name, Permanent Account Number (PAN), or your folio number to access the result. While on the IEPF website, you can click the box in the S. No. column and then hit ‘Submit’.
Step 5: On entering the details on the company website, a list will appear that will display if there are any unclaimed dividends with the individual’s account. On the IEPF website, you can browse and see the unpaid share dividends for your account.
Unclaimed dividend treatment
Unclaimed dividends that are not claimed within seven years are mandatorily transferred to the Investor Education and Protection Fund (IEPF).
Let us understand this with the help of an example.
A company declared dividends for a shareholder, Mr. A, in 2016. Mr. A did not claim these dividends for seven years until 2023. Hence, the unclaimed dividends will now be transferred to IEPF. However, this does not mean that Mr. A is not eligible to claim his dividends or will have to forfeit his dividend rights.
The shareholder will not have to claim his dividends from the IEPF after following a long-drawn process—the exact details of which we will cover in our next section.
Broadly speaking, it would require preparing a claim application and meeting all necessary legal requirements and documentation.
With this treatment of unclaimed dividends, the funds of the shareholder remain safe and can be claimed by the rightful owner even after several years from the declaration.
How to claim unclaimed dividends?
Step 1: Visit the IEPF website
On the homepage, go to the ‘Services’ tab, where you will find the ‘Claim Refund’ option. After clicking, you will be redirected to the ‘Upload eForms’ page.
Step 2: Log in to the MCA Portal
Upon clicking ‘Upload eForms’, the browser will redirect you to the MCA portal and ask you to log in. Once you are logged in successfully, go to the ‘MCA Services’ tab and click the ‘IEPF-5’ option.
Step 3: Fill out the online form
To fill out the refund claim form on the website, you will be required to enter all your details, such as name, folio number, cancelled cheque, PAN number, demat account number, etc., to verify your identity and establish your right to your investment in the company.
Step 4: Attach the required documents
Attach the necessary documents, such as your PAN card, cancelled cheque, ID proof, and other documents that establish your entitlement to the investment in the company. Make sure all details entered are correct to avoid any delays in processing.
Step 5: Submission of the form
Upon submitting the form through the portal, an SRN acknowledgement will be assigned to you to help you track your claim status.
Step 6: Share physical documents with the nodal officer
You must submit physical copies of your documents to a nodal officer designated by the company. Upon accessing your documents, the nodal officer will send an e-Verification Report to the authorities of IEPF.
Step 7: The company files a verification report
In this step, the company's nodal officer will review all the physical documentation you have submitted online. Once complete, an online e-Verification Report will be delivered with approval to the respective authorities of the IEPF.
Step 8: IEPF authority approval
The verification from IEPF can take some time, so you might need to follow up, with 60 days being the maximum time frame. You might also be required to produce additional documents if deemed necessary. Upon successful verification, an approval email will be sent to you on your registered email.
Step 9: Initiation of refund and transfer of money
On successful claim verification, the IEPF authority will start the refund process. The unclaimed dividend amount will be transferred to your bank account.
Why are dividends left unclaimed?
Several factors contribute to dividends remaining unclaimed. Outdated contact information, forgotten investments, and uncommunicated changes to bank details can hinder successful disbursement. Shareholders may disregard small dividend amounts, considering them insignificant. Physical dividend warrants may be returned undelivered due to address changes, while technical issues like incorrect bank details or IFSC codes can obstruct electronic transfers. Long-term investors, especially those holding inherited or older investments, may lose track of their holdings. The lack of regular portfolio monitoring and failure to update Know Your Customer (KYC) details further contribute to unclaimed dividends.
This version maintains the original meaning while presenting the information in a more concise and flowing manner.
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Where do unclaimed dividends go?
When dividends declared by a company remain unclaimed or unpaid for seven consecutive years, they are transferred to the Investor Education and Protection Fund (IEPF), as mandated by Section 124 of the Companies Act, 2013. This process ensures that unclaimed dividends and the associated shares are safeguarded and can be reclaimed by rightful owners. The IEPF Authority manages these funds, and shareholders can retrieve their unclaimed dividends and shares by submitting an application in Form IEPF-5, along with necessary documents, through the official IEPF website. This mechanism protects investors' interests and maintains the integrity of the financial system.
Conclusion
Getting hold of your unclaimed dividends can boost your financial health. Recovering assets you would otherwise have lost or forgotten about is always rewarding. Investors should be proactive and not shy away from taking the necessary steps to reclaim their unclaimed dividends.
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