The Gujarat High Court (Ahmedabad Bench) has clarified that under the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, if a claimant for securities, valued up to Rs. 5 Lakhs, provides one of the documents specified in Rule 2.2(a), such as a succession certificate, the authorities cannot compel the claimant to also furnish an indemnity bond as required under Rule 2.2(b).
The Court ruled that the requirement to submit an indemnity bond under Rule 2.2(b) is an alternative, applicable only when the documents under Rule 2.2(a) are absent. The lawful property of a citizen cannot be denied based on an unwarranted and erroneous interpretation of statutory rules, and any such action by the authorities is arbitrary, unsustainable, and liable to be set aside.
A Single Judge Bench of Justice Hemant M. Prachchhak noted that the central issue was whether the respondent authorities were justified in insisting that the petitioner furnish an indemnity bond for the transmission of shares, despite her having already submitted a valid succession certificate, especially when the value of the securities was less than Rs. 5 Lakhs. The respondents contended that the requirement for an indemnity bond was a mandatory part of the procedure prescribed by the IEPF Rules for processing the claim.
The Respondent No. 2 clarified that while it had found the petitioner’s documents to be in order, the insistence on the indemnity bond was due to the procedural requirements of the IEPF Authority’s online portal and rules. However, Respondent No. 2 also stated it would have no objection to the transmission if the IEPF Authority (Respondent No. 1) waived this requirement.
The Bench observed that the respondents’ insistence was based on a misinterpretation of Rule 2.2 of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016. The Bench performed a plain reading of Rule 2.2, which stipulates the documentary requirements for claims involving securities valued up to Rs. 5 Lakhs. It noted that Rule 2.2(a) requires documents like a succession certificate, probate of will, or a court order. At the same time, Rule 2.2(b) requires an indemnity bond and a no-objection certificate from other legal heirs, but this clause is explicitly applicable only ‘in the absence of the documents as mentioned at (a) above’.
The Bench found that since the petitioner had already furnished a succession certificate under Rule 2.2(a), there was ‘no justification whatsoever’ to demand compliance with Rule 2.2(b). The Bench held that the respondents’ action was ‘wholly misconceived’, ‘arbitrary and unsustainable in law’, and that they could not impose additional conditions not contemplated in the rules once the prescribed requirements were met.
Briefly, the petitioner is the legal heir of her deceased mother, Kala Arvind Nanavati, who passed away on Nov 16, 2012. The mother was the original shareholder of Navin Fluorine International Limited, holding shares in physical form. The petitioner obtained a succession certificate from the City Civil Court, Ahmedabad. on Dec 21, 2021. As the dividend on the shares had remained unclaimed for seven consecutive years, the shares were transferred to the Investor Education and Protection Fund (IEPF) on Dec 24, 2021, pursuant to Section 124(6) of the Companies Act, 2013.
The petitioner applied for the transmission of these shares into her name, submitting all necessary documents, including the succession certificate. The value of the shares in question was less than Rs. 5 Lakhs. The Respondent No. 2 (the company) issued an Entitlement Letter confirming the documents were in order but insisted on the submission of an indemnity bond, stating it was a mandatory requirement auto-generated while filing Form IEPF-5 as per the procedure laid down by Respondent No. 1 (IEPF Authority). Due to the petitioner’s failure to submit the indemnity bond, her application was rejected.
Appearances:
Advocates SI Nanavati and Aditya A Gupta, for the Petitioner
Advocates Ankit Shah and Parth H Saluja, for the Respondent
