A portfolio bigger than Jhunjhunwala's - without buying even a single share

IEPF's new status as a leading shareholder of India Inc is due to a rule which has become operational recently by which investors, who don't claim dividends, have their shares transferred to the IEPF

One of India’s biggest non-promoter shareholders got there without buying a single share. And the growth shows no signs of slowing down. But there’s no new Warren Buffett in Indian markets. 

The beneficiary of this bulging demat account is the Investor Education and Protection Fund (IEPF), set up under the Ministry of Corporate Affairs, with the main objective of promoting investor awareness and protection. 

Its new status as a leading shareholder of India Inc is due to a rule which has become operational recently. By that investors who don’t claim dividends have their shares transferred to the IEPF. 

The total value of such shares transferred since then has crossed Rs 188.7 billion till July 2018, shows the answer to an application that Business Standard filed under the Right to Information (RTI) Act. 

This dwarfs the value of billionaire Rakesh Jhunjhunwala’s public portfolio, which was worth Rs 123.33 billion as of the end of the June quarter — the latest available for all companies. 

Jhunjhunwala’s shareholding includes the value of his stake in companies where he owns 1 per cent or more. 

The IEPF authority also shared that in addition to the Rs 188.7 billion, the value of unclaimed dividends transferred in financial year 2018-19 is Rs 458.1 million, according to the data till July 2018. 

Portfolio of the ‘unknown’ shareholder

• Unclaimed shares/dividends are transferred to IEPF

• Value of such transferred shares is Rs 188.7 billion

• Dividends for 2018-19 is Rs 458.1 million

• 8,257 requests for refunds as of June-end

• Only Rs 13.4 million returned so far

Virendra Jain, founder of Midas Touch Investors Association, said the provisions of transferring securities and dividends to the IEPF were against the interests of investors. The issue of unclaimed securities and money is between the company and its shareholder; the government should not be taking shares away from the accounts of investors just because they haven’t claimed dividends, said Jain.  “This amounts to a method of usurping an individual’s property,” he said, suggesting the provision may be open to legal challenge.  

Some feel otherwise. Such shares tend to be safer with the government than with companies themselves or with intermediaries, said Suresh Surana, founder of RSM Astute Consulting, which helps companies with legal and compliance services. Shares with dormant accounts and unclaimed shares have previously fallen prey to unscrupulous entities among private intermediaries, he pointed out. 

“It does become more susceptible to fraud,” said Surana. 

The move to make such transfers to the IEPF came after cases of fraudulent share transfers surfaced. The Securities and Exchange Board of India had debarred registrar and share transfer agent Sharepro Services in its March 2016 order. It noted that unclaimed dividends and shares had been fraudulently usurped from shareholders’ accounts.

Pavan Kumar Vijay, founder and managing director at legal and financial consulting firm Corporate Professionals (India), also said investors might benefit since everything was consolidated if they wanted to claim old shares or benefits. “All the shares are in one place,” he said.

Investors can reclaim their shares, dividends, and other money by making an application requesting for it. The amount is credited back to the investor’s account after the company verifies the request, the guidelines on refunds say. 

But few investors have got their money back, probably because they are not aware of how to go about the process of claiming dividends and shares, say experts. 

The data requested under the same RTI application shows there have been 8,257 requests from investors as on June 30, 2018, to reclaim their shares and dividends. The value of unclaimed shares and dividends returned to shareholders is Rs 13.4 million. This works out to less than 0.007 per cent of just the value of shares credited to the IEPF.