Recently, Securities & Exchange Board of India (‘SEBI’) has issued detailed guidelines in relation to transfer of securities and payment of dividends.

The objective of the guidelines is to streamline and reinforce certain procedures related to transfer of securities/payment of dividends by the registrar and share transfer agents and handling and maintenance of records.

The guidelines seek to deal comprehensively with payment of dividend, interest and redemption, correction of errors, compulsory internal audit by share transfer agents (RTAs).

Glimpse of key provisions of the guidelines related to transfer of securities and payment of dividends:

·       The guidelines are applicable to issuer companies and bankers to any issue and obligate issuer companies/bankers/RTA to preserve prescribed documents for a period of 8 years following the completion of relevant transactions.

·       The acts of RTAs should be monitored strictly by the issuer companies. Even if these activities are being carried out In-house by issuer companies, share transfer agents should also be conducted in compliance with the relevant norms without fail.

·       The issuer companies/bankers/RTA are obligated to include the details of company name, folio number and account details amid others in the master file with detailed list of beneficiaries of dividends or redemption.

·       Any dividend, interest and redemption instrument lying unpaid following the expiration of the validity of the instrument need to be cancelled by the processing bank. Any amount transferred by the issuer in relation to the cancelled instrument should be credited back to the issuer company right away without any delay.

·       Any folio issued to a person by RTAs and issuer companies should never be re-allotted to any person under any circumstances.

·       All updates in the folio records by RTA and issuer companies to be updated via front end modules only. No back end entry/updation/correction should be allowed.

·       In line with transfers and transmissions, any correction of errors by the RTAs must be subject to the prior approval of the company.

·       In case the dividend, interest and redemption remain unpaid for a period of 3 years along with the fact that folio does not contain information related to Permanent Account Number and bank details, the RTA and issuer companies have to exercise enhanced due diligence – A detailed list of such folio accounts has to be maintained by RTAs and shared with the issuer company at the end of every quarter for every year.

·       In relation to share transfers and dividend payments – an internal audit on annual basis should be conducted by the RTAs via independent chartered accountant/company secretary/cost and management accountants provided such professionals do not have any conflict of interest.

·       Auditors may be appointed maximum for a period of 5 years with a cooling off period of 2 years provided such auditors has a minimum of 3 years professionals experience in the finance field.

·       Within the 3 months following the end of financial year – a copy of internal audit should be submitted to the issuer company by the RTAs.

·       The report of the internal audit should be reviewed by the governing council comprising of board of directors, board of partners/proprietors and curative measures should be taken to rectify the discrepancies identified following the review.

·       Within one month following the review, action taken report should be send to the issuer company by the RTA and maintain the report copy with it.

·       The RTA is obligated to submit to the issuer company board of directors the audit observations along with the corrective steps employed by the RTA.

One can hope that the new guidelines will ensure transparency in the transaction related to share transfers and dividend payments and obligate concerned parties to conduct internal audit to identify the shortcomings and rectify the shortcomings to enhance accountability on the concerned parties and ensure transactions will be carried out in a translucent mode leaving no latitude for bias or fraud in share transfer/dividend payment. 

Research inputs by Paruchuri Baswanth Mohan