prpri Comprehensive note on major provisions of Dividend Comprehensive note on major provisions of Dividend


Dividend in ordinary parlance is the portion of the profits of a Company which is distributed among its shareholders. Thus for a shareholder, dividend is the return on his investment in the Company. Dividend is declared on the face value of the shares.

When a company earns profits, it can deal with the same as follows:

A) Transfer the same to Reserves and Surplus to finance future growth.

B) Distribute the same as Dividend.

In its early years, company prefer to exercise the first option and conserve its profits to finance growth and development. As the company reaches a certain pedestal, it begins to declare dividend.


Dividend is defined u/s 2(35) of Companies Act 2013 as: Dividend includes interim dividend.

 Thus, dividend can be

A) Final or interim.

B) On equity and/ or preference shares.

Following is a comprehensive note on the major provisions on Dividend in

i. Companies Act 2013

ii. Companies (Declaration and Payment of Dividend) Rules 2014

iii. Secretarial Standard 3 prescribed by ICSI  

Final Dividend

 I. Sources of Dividend

 i. Profit of the current year after providing of the depreciation; or

ii. Profit of the previous financial year or years after providing for depreciation for previous years; or

iii. both i. and ii.

iv. Out of the money provided by Central or State Government for payment of dividend in pursuance of guarantee given by that, if any.


i. No dividend to be made out of any reserves other than free reserves.

ii. The company shall first adjust carried over losses  and depreciation not provided for in case of previous years from the current years’ profit before declaring dividend.

iii. No dividend shall be declared out of 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.

II. Process for payment of dividend

A. Company in Board Meeting may decide the amount of dividend which they want to recommend in General Meeting.

B. Company will mention the resolution for Dividend in the Notice of General Meeting.

C. Company will hold the General Meeting:

a. Declaration of Dividend is Ordinary Business.

b. Ordinary Resolution for declaration of dividend will be passed in the General Meeting.

D. Once dividend is declared, it must be paid within 30 days.

E. The amount of the dividend, including interim dividend, shall be deposited in a schedule bank in separate account within 5 days from the date of declaration of such dividend.

F. The company may transfer such percentage of the profits to its General Reserve as it deem fit.

G. The dividend shall be paid to

a. The registered shareholder,

b. Any person to whom the shareholder may direct by giving in writing to the company.

c. The banker of the shareholder.

H. The dividend may be paid in cheque or warrant or in any electronic mode.

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. Where Dividend is remitted through electronic mode, the company shall send to the Member, a statement in writing showing the amount of Dividend paid.

I. In case the dividend is paid out of reserves due to inadequacy of profits,

a. The dividend shall be paid at a rate not exceeding the average of the rates at which dividend was declared in the three years immediately preceding the current year.

b. The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of the paid-up share capital and free reserves as appearing in the latest audited financial statement.

c. The amount so drawn shall first be utilised to set off the losses incurred in the current year before declaring dividend.

d. The balance of reserves after such withdrawal shall not fall below fifteen per cent of the paid up share capital as appearing in the latest audited financial statement.

J. Preference Shareholders shall be paid Dividend before Dividend is paid to the equity Shareholders of the company.

K. 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.

L. Members may authorise the company in writing to pay the Dividend to the transferee specified in the instrument of transfer and the company shall act upon such authorisation.

M. In case of shares which have not been transferred because the ownership thereof is in dispute, or where specific prohibitory orders have been passed by a court or statutory authority, Dividend should be kept in abeyance and be transferred to the Unpaid Dividend Account, as and when it becomes due.

O. Unless the Articles provide otherwise, Dividend shall be paid in proportion to the amount paid-up on the shares and for the portion of the period of the financial year in respect of which it is paid.

P. 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, if the articles so authorize.

Q. 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, within 7 days from the date of expiry of the aforesaid period of 30 days.

R. The company shall within a period of ninety days of the AGM or the last day when AGM should have been held, prepare a statement containing the names, last known addresses, the amount of Dividend to be paid to each of the Members and the due date of transfer to IEPF account. The statement shall be uploaded on the website of the company and shall remain there till the unpaid or unclaimed Dividend is transferred to the Investor Education and Protection Fund. The company shall also file e-form IEPF 2 within the aforesaid period of 90 days.

S. Any person claiming to be entitled to any amount transferred to the Unpaid Dividend Account may apply to the company for payment of such amount.

T. 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. The transfer shall be made within a period of 30 days from the date of expiry of the aforesaid period of 7 years.

On transfer to the IEPF, the company shall do the following-

a) send a statement to the IEPF Authority in form IEPF 1 containing the details of transfer of unpaid or unclaimed Dividend to the Fund within 30 days of the transfer with the IEPF authority.

b) maintain record consisting of name, last known address, amount, Folio no., DP ID / Client ID no., certificate number, beneficiary details etc. of the persons in respect of whom unclaimed or unpaid Dividend is transferred.

c) shall not transfer any Dividend to the Fund where there is a specific order of Court or Tribunal or any other statutory authority restraining such transfer.

d) file with the IEPF Authority within thirty days of the end of each financial year, a statement in the prescribed format containing the details of the unclaimed or unpaid Dividend due to be transferred to the Fund in the next financial year.

U. Before transferring any unclaimed or unpaid Dividend to the IEPF, 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.

V. Any shareholder can claim his dividend transferred to the IEPF by following the prescribed procedure.

W. Any shares in respect of which dividend is unpaid or unclaimed for 7 consecutive years shall be transferred to the IEPF.

X. However, if any dividend is claimed/ paid to the shareholders in respect of the aforesaid shares, the same shall not be transferred.

Y. Before transfer of such shares to the IEPF, the company shall send individual notice to the concerned Members at least three months in advance at his latest available address registered with the company giving details of the Members and the shares due for transfer to IEPF. Such details shall also be uploaded on the website of the company and published in one English and vernacular newspaper.

Z. Shareholders whose shares to IEPF can claim the same by following the prescribed procedure.

III. Important Points

1. Dividend declared in General Meeting can’t exceed the dividend recommended by the Board.

2. Dividend declared in General Meeting by member can be less than the dividend recommended by the Board.

3. Members may also decide not to declare the Dividend recommended by the Board.

4. If no dividend is recommended by the board, the shareholders cannot declare any dividend.

5. Dividend shall not be declared subject to any condition such as the approval of financial institutions/ banks or foreign collaborators or compliance with any other contractual obligation.

6. 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 AGMs.

7. Arrears of Dividend on cumulative preference shares for previous years may, however, be declared and paid.

8. The company shall not declare Dividend in case of non-compliance of provisions relating to the acceptance of deposits under Section 73 and 74, till the deposits accepted have been repaid with interest in accordance with the terms and conditions of the agreement entered with the depositors.

9. The 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),

(d) Repayment of any term loan to a bank or financial institution or interest thereon, till such time the default is subsisting.

10. Distribution of discount coupons to all the Shareholders shall not be treated as deemed Dividend.

11. A company is prohibited to issue Bonus shares in lieu of Dividend.

12. no default shall be deemed to have been committed, if –

(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;

(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.

13. Dividend once declared, cannot be revoked.

14. 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.

15. 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.

16. 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.

Interim dividend

1. Interim dividend can only be declared by board of Directors.

2. It can be declared during the financial year or at anytime from the closure of the financial year till the holding of the AGM.

3. It can be declared out of surplus in profit and loss account at the beginning of the year or profit during the year to which the interim dividend is related or from the profits of the current financial year till the quarter preceding the date of declaration of interim dividend.

4. The board shall before declaring interim dividend, consider the financial results for the period for which Interim Dividend is to be declared and should be satisfied that the financial position of the company justifies and supports the declaration of such Dividend. Such financial aspects shall include-

(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. If the company has incurred loss during the current financial year upto 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 by the company during the immediately preceding three financial years.

6. Where a company has issued equity shares with differential rights as to Dividend, Interim Dividend may, at the option of the Board, be declared on all or any one or more of the classes of such shares in accordance with the terms of issue.

7. 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.

8. 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 for that financial year.

9. All other provisions pertaining to final dividend shall apply mutatis mutandis to interim dividend.

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August 2021