Sebi mulls uniform norms for unclaimed funds on non-convertible securities

Markets watchdog Sebi on Friday proposed changes to align regulations for entities issuing non-convertible securities, standardising the process for handling unclaimed amounts by allowing their transfer only after seven years from maturity.

In its consultation paper, the regulator has proposed amendments to the Listing Obligations and Disclosure Requirements (LODR) Regulations to align them with the provisions of the Companies Act, 2013 and the Investor Education and Protection Fund (IEPF) Rules.

At present, Section 125 of the Companies Act mandates that unclaimed amounts, including matured debentures and the accrued interest thereon, be transferred to the IEPF only after 7 years from the date of maturity.

Rule 3 (3) of the IEPF Rules further clarifies that unclaimed interest is to be transferred along with the matured debenture amount after this period.

However, Regulation 61A of the LODR Regulations currently requires that any unclaimed interest held in an escrow account for seven years be transferred to the IEPF or the Investor Protection and Education Fund (IPEF), irrespective of whether the debentures have matured. This has created an inconsistency between the two frameworks.

To address this, Sebi has proposed substituting Regulation 61A(3) with a new provision that mandates the transfer of unclaimed amounts to the IEPF only after 7 years from the maturity date of the debentures.

For entities not covered under the Companies Act, the funds will be transferred to Sebi's IPEF after the same period.

Sebi said that the proposed "amendment would help bring standardization across all entities having non-convertible securities in terms of dealing with unclaimed amounts and facilitate ease of doing business as the entities shall have to transfer the amounts remaining unclaimed only once after completion of seven years from maturity".

These changes shall also be beneficial for the investors as they can directly approach the entity, up to seven years from maturity of the debt, to claim a refund of their money, rather than having to approach IPEF/ IEPF, it added.

The Securities and Exchange Board of India (Sebi) has invited public comments on the proposal until November 14.