Companies Act 2013 | Amount Due For Refund Post-Capital Reduction Does Not Qualify As Unclaimed Application Money For IEPF Transfer: Delhi High Court

"Perusal of Section 125(2)(h) of the Act shows that it deals with the application money received by companies for allotment of securities and due for refund. Whereas, the refund amount claimed by the petitioner had arisen after reduction of capital of the company as per the resolution." Delhi High Court, in a significant ruling dated 08th October 2026, held that funds earmarked for the refund of shareholders following a court-approved reduction of share capital do not fall within the ambit of "unclaimed application money" under Section 125(2)(h) of the Companies Act, 2013.

A bench of Justice Rajneesh Kumar Gupta observed that the statutory mandate for transferring unclaimed amounts to the Investor Education and Protection Fund (IEPF) after seven years is strictly confined to funds specifically categorized under the provision, and cannot be extended to capital reduction refunds.

Context of the Review Petition

The Respondent-Bank had filed a review petition under Order XLVII Rule 1 of the Code of Civil Procedure, 1908, challenging an order passed by the Court on 02nd February 2026. The Bank contended that since the escrow account containing the refund amounts had remained stagnant for over seven years, the funds were mandatorily required to be transferred to the IEPF under Section 125(2)(h) of the Companies Act, 2013. The Bank sought a recall of the directions that allowed the Petitioner-Company to retain and manage these funds for the purpose of discharging liabilities to ex-shareholders.

Defining the Scope of Section 125

The primary question before the Court was whether refund amounts originating from a capital reduction scheme sanctioned by the Court could be equated with "application money received for allotment of securities" as envisioned under Section 125 of the Act. The Court was also called upon to determine if the Respondent-Bank had established an "error apparent on the face of the record" to justify the invocation of its limited review jurisdiction.

Court Distinguishes Capital Reduction Refunds

The Court meticulously examined the statutory language of Section 125(2)(h), which mandates the credit of "application money received by companies for allotment of any securities and due for refund" to the IEPF if it remains unclaimed for seven years. The Court observed that the funds in question arose from a corporate restructuring process—specifically the reduction of share capital—which was duly sanctioned by the Court vide order dated 29th March 2016. Consequently, the nature of these funds was fundamentally distinct from application money received for the allotment of securities.

Strict Interpretation of Statutory Provisions

The Court noted that the Respondent-Bank failed to provide any legal basis to equate capital reduction refunds with the specific categories enumerated in Section 125. By failing to demonstrate how the amount qualified as "application money," the Bank’s argument regarding the mandatory transfer to the IEPF was rendered legally untenable. The Court emphasized that the directions contained in its previous orders, which facilitated the distribution of these funds to the entitled beneficiaries, were passed after due consideration of the material on record and the specific nature of the liability.

No Error Apparent on Record

The Court held that the scope of review is confined to correcting an error apparent on the face of the record, not re-adjudicating the merits of a dispute. Since the order under review had correctly appreciated the distinction between the funds and the statutory provisions of the Companies Act, the Court found no merit in the Bank's contentions.

Finding no legal infirmity or error that would necessitate the exercise of its review jurisdiction, the Court dismissed the petition filed by the Respondent-Bank. The Court reiterated that the funds must be utilized strictly for the purpose of discharging liabilities towards the beneficiaries and ex-shareholders as per the previously established scheme.

Date of Decision: 08 October 2026