1. Dividend shall be paid out of the profits of the financial year for which such Dividend is sought to be declared and/or out of profits for any previous financial year(s) which remains undistributed after providing for depreciation in accordance with the provisions of the Act. Dividend may also be declared out of money provided by the Central Government or a State Government in pursuance of a guarantee given by such Government for this purpose.
2. A company shall not declare Dividend on its equity shares in case of non-compliance of provisions relating to the acceptance of deposits under the Act, till such time the deposits accepted have been repaid with interest in accordance with the terms and conditions of the agreement entered with the depositors.
Defaulted in – Redemption of debentures, preference share, Payment of Dividend declared, Repayment of any term loan.
3. Dividend shall not be declared out of the Securities Premium Account or the Capital Redemption Reserve or Revaluation Reserve or Amalgamation Reserve or out of profits on re-issue of forfeited shares or out of profits earned prior to incorporation of the company.
4. Interim Dividend shall be declared and paid out of the surplus in the profit & loss account and/or out of profits of the financial year in which such Dividend is sought to be declared.
While declaring the Interim Dividend, the Board shall consider the financial results for the period:
(a) depreciation for the full year,
(b) tax on profits of the company including deferred tax for full year,
(c) other anticipated losses for the financial year,
(d) Dividend that would be required to be paid at the fixed rate on preference shares.
(e) the losses incurred, if any, during the current financial year upto the end of the quarter, immediately preceding the date of declaration of Interim Dividend.
5. Where a company has issued equity shares with differential rights as to voting only, no differentiation shall be made in the declaration of Interim Dividend on such shares, unless the terms of issue provide otherwise.
6. In a year in which the profits are inadequate or there are no profits, the company may declare Dividend out of Free Reserves:
(a) The rate of Dividend declared by the company shall not exceed the average of the rates at which Dividend was declared by it in the three financial years immediately preceding the financial year of declaration of Dividend. This shall not be applicable where a company has not declared any Dividend in each of the three preceding financial years.
(b) Total withdrawal from the accumulated profits shall not exceed one tenth of the sum of the paid up share capital and free reserves of the company as per the latest audited financial statements.
(c) The amount so withdrawn shall first be utilised to set off the losses, if any, incurred in the financial year in which Dividend in respect of equity shares is proposed to be declared.
(d) The balance of Free Reserves after such withdrawal shall not fall below 15% of the paid up share capital of the company as per the latest audited financial statements.
7. In the event of a loss or inadequacy of profits during a financial year, no Interim Dividend shall be declared/ paid out of Free Reserves.
Declaration of Dividend
8. Dividend shall be declared only on the recommendation of the Board, made at a meeting of the Board.
9. Dividend shall relate to a financial year and shall be declared by the Members at the Annual General Meeting of the company after adoption of the financial statements of the company. Members may declare a lower rate of Dividend than the rate recommended by the Board but have no power to increase the amount or rate of Dividend recommended by the Board.
10. No Dividend shall be declared on equity shares for previous years in respect of which annual financial statements have already been adopted at the respective Annual General Meetings.
11. Distribution of discount coupons to all the Shareholders shall not be treated as deemed Dividend.
12. A company is prohibited to issue Bonus shares in lieu of Dividend.
Entitlement to Dividend
13. Dividend to be paid only to the registered holders of shares entitled to Dividend or to their order or to their bankers.
14. Preference Shareholders shall be paid Dividend before Dividend is paid to the equity Shareholders of the company.
15. Arrears of Dividend on cumulative preference shares shall be paid before payment of any Dividend on equity shares.
16. ividend on equity shares shall be paid in accordance with the rights of the respective classes, if any, of such shares.
Dividend in Abeyance(suspension)
17. The amount of Dividend in respect of shares for which an instrument of transfer has been delivered to the company but which have not been registered for a valid reason shall be transferred to the Unpaid Dividend Account.
Payment of Dividend
18. Dividend shall be deposited in a separate bank account within five days from the date of declaration and shall be paid within thirty days of declaration. The intervening holidays, if any, falling during such period shall be included.
19. Taxes as applicable on distribution of Dividend shall be paid by the company within the prescribed time.
20. Dividend shall be paid in cash and not in kind : Dividend payable in cash may be paid through payable at par cheque or warrant or in any electronic mode of payment approved by the Reserve Bank of India.
21. Initial validity of the Dividend cheque or warrant shall be for three months.
22. A duplicate Dividend cheque or warrant shall be issued only after obtaining requisite indemnity/ declaration from the concerned Member and after ascertaining the encashment status of the original Dividend cheque or warrant.
23. The Dividend cheque or warrant shall be accompanied by a statement in writing showing the amount of Dividend paid, Folio no./DP ID and Client ID nos., number of shares held by the concerned Member as on the record date, amount paid up on each share and the financial year to which the Dividend pertains.
24. Dividend shall be paid proportionately on the paid-up value of shares.
25. Calls in arrears and any other sum due from a Member in relation to the shares of the company may be adjusted against Dividend payable to the Member.
26. No Dividend shall bear interest against the company except in case of default in payment of Dividend or dispatch of Dividend warrant/cheque within the prescribed period.
(a) the Dividend could not be paid by reason of the operation of any law; (b) a Shareholder has given directions to the company regarding the payment of Dividend and those directions cannot be complied with and the same has been communicated to the concerned Shareholder; (c) there is a dispute regarding the right to receive the Dividend; (d) the Dividend has been lawfully adjusted by the company against any sum due to it from the Shareholder; or (e) for any other reason, the failure to pay the Dividend or to post the cheque or warrant within the prescribed period was not due to any default on the part of the company.
27. The amount of Dividend which remains unpaid or unclaimed after thirty days from the date of its declaration shall be transferred to a special bank account titled as ‘Unpaid Dividend Account’ to be opened by the company in that behalf with any scheduled bank. Such transfer shall be made within seven days from the date of expiry of the thirty days period from the date of declaration of Dividend.
28. Any amount in the Unpaid Dividend Account of the company which remains unpaid or unclaimed for a period of seven years from the date of transfer of such amount to the Unpaid Dividend Account, along with interest accrued, if any, shall be transferred to the Investor Education and Protection Fund.
29. Before transferring any unclaimed or unpaid Dividend to the Investor Education and Protection Fund, the company shall give an individual intimation to the Members in respect of whom such unclaimed Dividend is being transferred, at least three months before the due date of such transfer.
30. Any interest earned on the Unpaid Dividend Account shall also be transferred to the Investor Education and Protection Fund
31. All shares in respect of which Dividend has not been paid or claimed for seven consecutive years or more shall be transferred by the company in the name of Investor Education and Protection Fund.
Revocation of Dividend
32. Dividend, once declared, becomes a debt and shall not be revoked.
Preservation of Dividend Cheques, Warrants and Dividend Registers
33. Dividend cheques or warrants returned by the Bank, after payment thereof, and the Dividend Registers shall be preserved by the company for a period of eight years.
34. Notes to Accounts forming part of the financial statements of the Company shall disclose the aggregate amount of Dividend proposed to be distributed to equity and Preference Shareholders for the financial year and the related amount of Dividend per share. Arrears of fixed cumulative Dividend on preference shares shall also be disclosed separately.
35. The Balance Sheet of the company shall also disclose under the head ‘Current Liabilities and Provisions’, the amount lying in the Unpaid Dividend Account together with interest accrued thereon, if any.
36. The amount of Interim Dividend, if any, paid during the financial year and final Dividend recommended by the Board of directors shall be disclosed in the Board’s Report.
37. The Annual Report of the company shall disclose the total amount lying in the Unpaid Dividend Account of the company in respect of the last seven years and when such unpaid Dividend is due for transfer to the Fund. The amount of Dividend, if any, transferred by the company to the Investor Education and Protection Fund during the year shall also be disclosed.
DISCLAIMER- This write up is based on the understanding and interpretation of author and the same is not intended to be a professional advice.
by CS Shubham Katyal