The Investor Education and Protection Fund (IEPF) plays a pivotal role in promoting financial literacy among investors, safeguarding their rights, and providing compensation for any losses inflicted due to fraudulent practices. Established under the Companies Act, 2013’s provisions, the IEPF holds significant legal and strategic importance in India’s financial landscape. This article will delve into understanding the establishment and operations of the IEPF, its primary functions, and the significance of the Investor Education and Protection Fund Authority established in 2016.
About the Investor Education and Protection Fund (IEPF)
Instituted under the Companies Act, 2013, the IEPF serves as a repository of funds accrued from various unpaid or unclaimed amounts like dividends, application money, and matured deposits that have lain dormant for seven years. These remaining funds are necessary to be directed towards the IEPF.
These consolidated funds are part of India’s Consolidated Fund as per Article 266 of the Constitution. It means the amounts attributed to IEPF form a section of the total fiscal resources of the government, cementing its statutory importance.
The Objective of the Investor Education and Protection Fund
The core philosophy of the IEPF revolves around fostering investor awareness and ensuring the protection of investor interests. These funds are channelized into several initiatives and programs designed to increase investor education and awareness.
In addition to this fundamental role, the IEPF also serves as a relief providing mechanism for aggrieved parties in cases of securities fraud.
Compensation through Disgorgement Orders
The term ‘disgorgement’ refers to a legal order issued when an individual or a firm illicitly profits from their activities in the securities market. The disgorged amount, along with applicable interest, is repaid to the affected investors.
These funds assist shareholders, debenture-holders, or depositors who incur losses owing to improper actions by any person. All such compensations are made in accordance with the orders issued by the Court.
The Investor Education and Protection Fund Authority
The Government of India established the Investor Education and Protection Fund Authority in 2016 for administering the IEPF effectively. This statutory body was set up under section 125 of the Companies Act, 2013. The authority comes under the jurisdiction of the Ministry of Corporate Affairs.
The primary responsibility of this authority is to ensure the efficient administration and utilization of funds credited to the IEPF. It plays a crucial role in promoting investor education, securing their interests, and providing timely compensation.
In summary, the Investor Education and Protection Fund and its governing Authority work in tandem to safeguard the interests of the investors in India’s securities market. They aim to promote awareness and encourage healthy investment practices while providing due relief to investors in case of fraudulent activities.
