Introduction: Dividends are a crucial aspect of shareholder returns, regulated by Section 123 of the Companies Act, 2013. Understanding the provisions and intricacies of dividend declaration is vital for companies to ensure compliance and maintain shareholder trust.
DECLARATION OF DIVIDEND
Section 123 of the companies act, 2013 read with Companies [Declaration & Payment of Dividend] Rules, 2014
- Sources of declaration of Dividend
1. Profit for the current financial year ; or
2. Profit for the current previous financial year; or
3. Both ; or
4. Money given by Central Government/State Government if guarantee given by them
- Dividend can-not be declared from unrealised gains, notional gains or revaluation of assets
A company can-not declare dividend if it has made default in any of the following payments
1. Redemption of debentures or payment of interest on it
2. Redemption of preference shares
3. Creation of capital redemption reserve
4. Payment of Dividend declared
5. Repayment of any term loan to bank or FI
> DIVIDEND IN CASE OF ABSENCE OR INADEQUACY OF PROFITS: (Rule-3 of Companies [Declaration & Payment of Dividend] Rules, 2014)
√ Declare from free reserves provided
1. Rate of dividend shall not exceed average of last 3 year’s profit
2. Total amount to be drawn for the purpose of payment of dividend shall not exceed 10 % of paid up + FR
3. to be drawn to be first used for set-off of losses made by the company in the previous financial years
4. Balance in the free reserves after such withdrawal shall fall below 15 % of paid up and free reserves
5. Dividends should not be declared unless the losses from the previous year have been set off and the current year’s depreciation has been accounted for.
DECLARATION OF INTERIM DIVIDEND:
- An interim dividend can be declared at any time after the closure of the financial year until the date of the Annual General Meeting (AGM)
1. From the profit generated in the last financial year; or
2. From the profit generated in the financial year up to the immediately preceding quarter of the financial year in which the interim dividend is to be declared.
- If Company has made loss in last financial year then,
1. Rate of dividend shall not exceed the average of previous 3 year’s rate of dividend
- As per SS-3, no interim dividend shall be declared from the paid-up capital and free reserves if the company has made a loss
PAYMENT OF DIVIDEND (SECTION 123 & 124)
- The amount should be deposited in a separate bank account within 5 days of the declaration of the dividend.
- The dividend amount must be paid to shareholders within 30 days of its declaration.
- If any amount remains unpaid, it should be transferred to the unpaid dividend account within 7 days after the expiry of the 30-day period.
- A list of shareholders with unpaid dividends should be prepared and published on the company’s website within 90 days of the transfer to the unpaid dividend account.
- If the dividend remains unpaid for 7 years, it must be transferred to the Investor Education & Protection Fund (IEPF) along with a statement in Form IEPF-04.
- In case of default in payment, an interest of 12% per annum will be applicable.
PROCEDURE FOR REFUND FROM Investor Education & Protection Fund (IEPF)
1. Apply using Form IEPF-5.
2. Simultaneously submit an application to the company along with the required documents.
3. The company, within 15 days of receiving the claim, will send a verification report to the authority.
4. If the claim is not received within 90 days of filing Form IEPF-5, the authority will reject the claim but will give the claimant an opportunity to furnish a response within 30 days.
5. The authority will dispose of the claim amount within 60 days from the date of receipt of the verification report from the company.
Conclusion: The declaration and payment of dividends, governed by Section 123 of the Companies Act, 2013, involve adherence to strict rules and procedures to safeguard shareholder interests and maintain corporate transparency. By comprehending the guidelines outlined in the Companies Act and associated rules, companies can effectively manage dividend distributions while ensuring regulatory compliance and investor confidence.
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