CS Siddhartha Banik
In common parlance Dividend means distribution of portion of profits available which is allocated to holder of shares of the Company on a particular date i.e. on record date. Companies Act, 2013 has not defined the term Dividend. However, Section 2(35) of the Act mention that dividend includes interim dividend. This definition is not an exhaustive definition but an inclusive definition and the same definition was exit in the Companies Act, 1956 also.
Normally Dividends are declared at the close of the financial year at the General Meeting of the Shareholders, which is known as Final Dividend. However, a company can declare Interim Dividend in between a financial year.
Payment of Dividend Out of Profits:
1. Dividend can be distributed from profits as below:
-Out of the profits of the Company of that financial year; or
– Out of the profits of the Company earned in previous year or years; or
-Out of both of the above;
-Out of money provided by the state government or central government for payment of dividend in pursuance of a guarantee given by that government.
Depreciation must be provided first from the Profit of the Company, which is to be calculated as per Schedule II.
Transfer to Reserve for declaration of Dividend:
The company may before declaration of dividend in any financial year transfer such part of its profits for that financial year to Reserve as the Board of Directors thinks appropriate. This is a paradigm shift from the Companies Act, 1956.Now there is no compulsion for transfer a fixed percentage of Profit to Reserve. It enables the Company to have more fund for dividend.
Eligibility of distribution of Dividend:
If the Articles of Association of the Company does not bear any contrary provisions to pay dividend then the company can distribute dividend in proportion of the Paid up Share Capital of the Company.
However, question may arise as what will happen if all the share of the Company are not equally paid up. In that case dividend will declared in pro rata basis i.e. in proportion of the paid up capital.
Dividend Payable in Cash Only:
As per Section 123(5) of the Companies Act, 2013 Dividend shall always be payable in cash. Payable in cash include paid by cheque or warrant or any electronic mode.
If the amount are transferable to the Bank account of the shareholders by electronics mode proper consent and accounts details should be obtained from the shareholders.
Provisions for Listed Company as per SEBI(ICDR)2015:
The listed entity shall use any of the electronic mode of payment facility approved by the Reserve Bank of India, in the manner specified in Schedule I, for the payment of the dividends;
Provided that where it is not possible to use electronic mode of payment, ‘payable-at-par’ warrants or cheques may be issued:
Provided further that where the amount payable as dividend exceeds one thousand and five hundred rupees, the ‘payable-at-par’ warrants or cheques shall be sent by speed post.
Enforceability of Dividend Declared:
In case of Final Dividend the shareholders get the right of Dividend once it is approved at the General Meeting and once approved it is not revocable except with the consent of the shareholders at their meeting. However, this situation is different in case of Interim Dividend. The Board of Directors can revoke the payment before disbursement, if the Board of Directors feels that circumstances is not proper or changed for payment of dividend.
PROCEDURE OF PAYMENT OF FINAL DIVIDEND
Procedure of Declaration of Final Dividend:
1) Board Meeting: A meeting of the Board of Directors will be convened.
2) Agenda of the meeting shall mention, amongst others, the following:
a) Approval of Annual Accounts;
b) Recommendation of Payment of Dividend to the shareholders at the proposed rate at the forthcoming Annual General Meeting;
c) To decide the Book Closure period/Record Date to determine the eligible holders of shares for the purposes of declaration of Dividend;
d)Approving the date, time place of AGM and draft Notice of AGM, including authorizing Company Secretary or where is no Company Secretary is appointed or available then the Chairman of the Board or any other authorized person as the Board feel competent, to issue Notice on behalf of the Board of Directors.
3)Director’s Report: As per Section 134(3)(k) the Director’s Report should mention the amount proposed to be declared as Dividend. However if no dividend are proposed for declaration then a statement to that effect shall be mentioned.
4) AGM: Conduct the AGM at the schedule time and place. Required quorum must be present at the meeting. Shareholders has the right to reschedule the amount of Divided as proposed by the Board of Directors. However, the Shareholders has no right to increase the rate of Dividend as originally proposed by the Directors. They can only reduce the same. Shareholders shall pass Ordinary Resolution approving the Dividend.
5) Opening of Special Account: Immediately on approving of Dividend by the Shareholders a Special Account with Schedule Bank will be opened for depositing the total amount of Dividend.
6) Credit of Total Amount Payable to Dividend Account: Within 5 days of declaration of Dividend, total amount of Dividend payable shall be credited with the special bank account opened for distribution of Dividend to eligible shareholders;
7) Distribution of Dividend: Prepare a list of eligible shareholders and statement of dividend thereon. Dividend must be distributed with in 30 days of declaration. Necessary arrangement with Bank should be made for payment of Dividend.
Additional Compliances for Listed Companies while distribution of Dividend(Final /Interim) under SEBI (ICDR) 2015:
Intimation to Stock Exchange of annual general meeting or extraordinary general meeting or postal ballot that is proposed to be held shall be given
The listed entity shall give notice in advance of record date specifying the purpose of the record date of at least seven working days (excluding the date of intimation and the record date) to stock exchange(s) .
The listed entity shall recommend or declare all dividend and/or cash bonuses at least five working days (excluding the date of intimation and the record date) before the record date fixed for the purpose.
The listed entity shall declare and disclose the dividend on per share basis only.
Note: In this article procedure of ‘Final Dividend’ has only been described.