Shell cos exploiting IEPF scheme, blocking genuine beneficiaries

In the Ministry of Corporate Affairs (MCA), there is an alleged case of data breach which has been taking place for quite some time in IEPF (Investor Education Protection Fund). Interestingly, all the data has come to public domain in the site of an NGO, Jeevantika Consultancy Services, which is active in the domain of lost and unclaimed investments, whereas as per Companies Act these data can’t be made available in the public domain.

There are quite a few shell companies which have been formed to make claims under the scheme. Three-four Corporate Identification Number (CIN) for same number have been issued by the shell companies which has been creating the roadblock for the genuine beneficiaries to get claims of their funds, an MCA source revealed requesting anonymity.

To make it easier for investors and their heirs to apply for unclaimed dividends, interest on bonds, matured deposits and shares, the government has made available a new utility for the public to search the database of such assets valued at over Rs 5,600 crore lying with IEPF.

The Authority is entrusted with the responsibility of administration of the IEPF, make refunds of shares, unclaimed dividends, matured deposits/debentures etc. to investors and to promote awareness among investors.

Shareholders often face problems like KYC issues, signature mismatch, name mismatch, succession/transmission, lost share certificates and other IEPF issues, and thus their hectic search begins for an intermediary who could extend a helping hand in getting them resolved. That is how the consultancy service providing firms have come up in existence.

For administration of IEPF government of India has on September 7, 2016 established IEPFA under the provisions of section 125 of the Companies Act, 2013.

The Authority is entrusted with the responsibility of administration of the IEPF, make refunds of shares, unclaimed dividends and matured deposits/debentures to investors and to promote awareness among investors. Of course, the IEPFA site claims to help shareholders get their refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon.

PSU companies’ official sites are showing it publicly in sharp violation of Companies’ Act, the source said. Though corporate houses are not displaying the same openly on their sites, still one can frequently see those info at the site of Jeevantika.

As per law, no company can run in more than one registered name. Moreover, any new company can only opt for a business name that has not been registered in any part of India. Once a company or LLP is registered, the Ministry of Corporate Affairs (MCA) doesn’t allow any other company to be registered with a similar name as per the Companies Act, 2013. In spite of all this, and in sheer violation of law, companies with same name are having multiple CINs. In an utter surprise, same company have 4-5 CINs in a sheer violation of the norms.

Contrary to the set norms, it has been observed that there are many cases in the MCA’s companies’ master data where multiple active CINs have got the same company names. It has also been observed that these also contain CINs having a majority of similar details.

For example, there are active companies having same name registered under same RoC, with same registered address and e-mail ID. Of these, there are even cases where these companies have been registered within a very short span of time of each other and many that have been very recently registered too.

Existence of such cases is contravening the Companies Act, 2013. It is also creating a security risk as they might be used as shell companies or as a cover for fraudulent purpose, for money laundering and for any kind of anti-national activities, revealed a source familiar with the development, requesting anonymity, adding, “They need to be looked into urgently and rectified so that this is prevented in future.”

Interestingly, this kind of data breach is happening at a time when the IEPFA, a statutory body attached to the MCA, has turned down a SEBI proposal to let companies handle investors’ claims and refund shares, dividends and interest income held in a designated fund.

When contacted by Bizz Buzz, Khagesh Chitlangiya, Founder, Jeevantika Consultancy services said, “By default, IEPF has given instruction to companies to publish the info. For any info, which is available by default, we want that the access should be made available to public for free.”

Asked about the hefty commission being charged for processing of such funds, he said that if anybody wants to take assistance or service, then one has to pay fee for the same. Normally Jeevantika charges 10 per cent of the payment to come from the fund to the investor plus GST as its commission. Minimum fee comes at Rs 25,000.

On hefty commission being charged by the middlemen, he says that often investors have got neither access to such data nor they know how to process them. Hence, the commission comes at a higher rate. The process should be made smooth and the consultation charge must come down to near zero per cent, he observed, saying, “We don’t take anything in advance. We take our commission once the job was done.’ Similarly, if IEPFA is so much concerned about investor’s unclaimed fund, then why is it not able to put proper check and balance in place to ensure that there was no data leak happening as it was directly related to the investors’ hard-earned money.