DECLARATION AND PAYMENT OF DIVIDEND
The Companies Act 2013
Dividend is that portion of earnings which the company pays out to its shareholders. “Dividend” may be final dividend or interim dividend.
Sources of Dividend
Dividend for any financial year can be paid by a company -
> out of the profits of the company for that year or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation and remaining undistributed, or out of both; or
> out of money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government
No dividend shall be declared or paid by a company from its reserves other than free reserves. Free reserves means such reserves which, as per the latest audited balance sheet of a company, are available for distribution as dividend
Inadequacy/ Absence of profits
Where the profits are inadequate, the company may think of declaring dividends out of the accumulated profits earned by it in previous years and which now forms part of reserves (surplus). In such a case the following conditions shall be fulfilled-
> The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the 3 years immediately preceding that year. This condition will not apply to a company, which has not declared any dividend in each of the 3 preceding financial years.
> The total amount to be drawn from such accumulated profits shall not exceed 1/10th of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement.
> Such amount shall be used for payment of dividends only after set off of losses incurred in that financial year.
> The balance of reserves after such withdrawal shall not fall below 15 %of its paid up share capital as appearing in the latest audited financial statement.
> No company shall declare dividend unless carried over previous losses and depreciation not provided in previous year are set off against profit of the company of the current year the loss or depreciation, whichever is less, in previous years is set off against the profit of the company for the year for which dividend is declared or paid.
> Statement of amounts to be credited to Investor Education and Protection Fund shall be filed in Form DIV5.
Transfer to Reserves
A company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company.
The company may declare interim dividend during any F.Y out of the surplus in the profit and loss account and out of profits of the F.Y in which such interim dividend is sought to be declared. Where the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding 3 financial years.
Unpaid Dividends- Treatment
Where dividends payable to shareholders has not been paid/ claimed within 30 days from the date of the declaration, the company shall, within 7 days from the date of expiry of the said period of 30 days, transfer the total amount of unpaid/unclaimed dividend to a special bank account opened in any scheduled bank to be called the ‘Unpaid Dividend Account’.
The company shall, within a period of 90 days of making any transfer to the ‘Unpaid Dividend Account’, prepare a statement containing the names, their last known addresses and the amount payable to each person and place it on the company website (if any) and also on any other website approved by the Central Government for this purpose, in such form, manner and other particulars as may be prescribed.
The company will have to give interest @ 12 % p.a on amount not transferred to unpaid dividend account and the interest accruing on such amount shall enure to the benefit of the members of the company in proportion to the amount remaining unpaid to them.
Shareholders entitled to unpaid/unclaimed dividend i.e money transferred to ‘unpaid dividend account’ may apply to the company for payment of the money claimed.
Investor Education & Protection Fund (IEPF)
Any money transferred to the Unpaid Dividend Account of a company which remains unpaid or unclaimed for a period of 7 years from the date of such transfer shall be transferred by the company along with interest accrued, if any, thereon to Investor Education and Protection Fund established by Central Govt [section 125 (1)]. The company shall report such transfer in the prescribed format to the prescribed authority who will issue a receipt to the company as evidence of such transfer.
The shareholder may apply to the authority for claiming amount transferred to the fund subject to rules notified by Central Govt in this behalf.
>The amount of the dividend, including interim dividend, shall be deposited in a scheduled bank in a separate account within 5 days from the date of declaration of such dividend.
>No dividend shall be paid by a company in respect of any share therein except to the registered shareholder of such share or to his order or to his banker and shall not be payable except in cash: Provided further that any dividend payable in cash may be paid by cheque or warrant or in any electronic mode to the shareholder entitled to the payment of the dividend.
>A company has continuously failed to comply with the provisions relating to acceptance & repayment of deposits (sections 73/74) then such company shall not declare any dividend on its equity shares.
> Where any instrument of transfer of shares has been delivered to any company for registration and the transfer of such shares has not been registered by the company, it shall, notwithstanding anything contained in any other provision of the Act,— (a) transfer the dividend in relation to such shares to the Unpaid Dividend Account referred to in section 124 unless the company is authorised by the registered holder of such shares in writing to pay such dividend to the transferee specified in such instrument of transfer
Failure in payment of dividends
Where a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within thirty days from the date of declaration to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to 2 years and with fine which shall not be less than 1000 rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate of 18% per annum during the period for which such default continues.
The following cases will not constitute failure in payment of dividends and hence not punishable—
(a) non-payment of dividend by reason of the operation of any law
(b) where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with and the same has been communicated to him
(c) where there is dispute regarding the right to receive the dividend
(d) where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder or
(e) where, for any other reason, the failure to pay the dividend or to post the warrant within the period, was not due to any default on the part of the company.
A person who is or has been a director of a company which has failed to pay any dividend declared and such failure to pay or redeem continues for 1 year or more shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of 5 years from the date on which the said company fails to do so.
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