Summary: The checklist outlines the legal and procedural framework for declaring an interim dividend under the Companies Act, 2013, emphasizing board-level authority, financial prudence, and strict compliance requirements. Interim dividend, included within the definition of “dividend” under section 2(35), may be declared by the Board of Directors at any time during the financial year or between year-end and the AGM, without shareholder approval. Before declaration, the Board must assess financial results after accounting for full-year depreciation, taxes, anticipated losses, and preference dividend obligations. Interim dividend may be paid out of current profits, accumulated surplus, or profits up to the preceding quarter, subject to restrictions where losses exist. Special rules govern payment from free reserves in case of inadequate profits. Procedurally, board meetings, opening of a separate bank account, timely deposit, and payment within 30 days are mandatory. Unpaid dividends must be transferred to a dedicated account and eventually to IEPF. Defaults in loans or securities bar declaration.
Checklist for Interim Dividend
As per section 2(35) of the Companies Act, 2013, “dividend” includes any interim dividend.
Let discuss the process of declaration of Interim Dividend.
| Pre Compliance | ||
| Definition of Interim Dividend | As per section 2(35) dividend” includes any interim dividend | |
| Article of Association | Check Article regarding the clause of declaration of dividend, if any | |
| Person authorized to declare Interim Dividend | Board of Directors of the Company | |
| Approval of Shareholders | Not Required | |
| Time limit for declared Interim Dividend | The Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from closure of financial year till holding of the annual general meeting | *While declaring the Interim Dividend, the Board shall consider the financial results for the period for which Interim Dividend is to be declared. The financial results shall take into account –(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.
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| Funds for declaration of divident | The interim dividend may declared 1. Out of the surplus in the profit and loss account or,2. Out of profits of the financial year for which such interim dividend is sought to be declared or, 3. Out of profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend: Provided that in case 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 three financial years. | * in computing profits any amount representing unrealised gains, notional gains or revaluation of assets and any change in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded |
| Transfer of funds to reserves | 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: | nan |
| In case of inadequacy or absence of profits | In case of inadequacy or absence of profits, dividend may have declared from free reserves subject to the following condition
1. The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the three years immediately preceding that year. 2. The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement. 3. The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividend is declared before any dividend in respect of equity shares is declared. 4. The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share capital as appearing in the latest audited financial statement. |
Point 1 not applicable in case were company has not declared any divident during the said period |
| Check agreement with Bank/ Financial Institution | Check loan agreement whether any restriction was made regarding the payment of dividend | |
| Process for declaration of Interim Dividend | ||
| Calling of 1st Board Meeting | send notice of BM at least 7 days before the calling of Board Meeting to the all directors | |
| Conduct Board Meeting | Following resolution shall be pass in the meeting
1. proposal of Interim Dividend and finalization of financial statement 2. Opening of Bank Account with scheduled Bank |
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| Conduct 2nd Board Meeting | Following resolution shall be pass in the meeting
1. Declaration of Interim Dividend 2 |
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| Opening of separate Bank Account | Amount of interim dividend, shall be deposited in a scheduled bank in a separate account within five days from the date of declaration of such dividend | |
| Payment of Dividend | Dividend must be paid within 30 days from the date of decalaration and 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 | |
| Post Compliance | ||
| if not paid or claim within 30 days from the date of declaration then within 7 days transfer such amount into to a special account to be opene by the company called unpaid dividend account | ||
| 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. | ||
| Restriction | 1. no dividend shall be declared or paid by a company from its reserves other than free reserves.2. no company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year | |
| No divident shall declared in the following cases | A company shall also not declare any Dividend, if it has defaulted in –(a) Redemption of debentures or payment of interest thereon or creation of debenture redemption reserve,(b) Redemption of preference shares or creation of capital redemption reserve,(c) Payment of Dividend declared in the current or previous financial year(s),or(d) Repayment of any term loan to a bank or financial institution or interest thereon, | |
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