Guidance Note on Dividend as issued by Institute of Company Secretaries of India (ICSI)
GUIDANCE ON THE PROVISIONS OF SS-3
1. Ascertainment of amount available for payment/distribution as Dividend.
2. Declaration of Dividend
3. Entitlement to Dividend
4. Dividend in Abeyance
5. Payment of Dividend
6. Unpaid Dividend
7. Revocation of Dividend
8. Preservation of Dividend Cheques, Warrants and Dividend Registers
10. Additional Compliances for Listed Company
Annexure-‘A’ Additional compliances applicable to Listed Companies
Annexure-I Specimen of Board Resolution recommending payment of Dividend on equity shares out of profits
Annexure-II Specimen Resolution for Declaration of Dividend by Members at an AGM
Annexure-III Model Dividend Distribution Policy
Annexure-IV Specimen of Board Resolution for Declaration of Interim Dividend on equity shares
Annexure-V Declaration for issue of Duplicate Dividend Warrant
GUIDANCE NOTE ON DIVIDEND
The “Secretarial Standard on Dividend” (SS-3), formulated by the Secretarial Standards Board (SSB) of the Institute of Company Secretaries of India (ICSI) and issued by the Council of the ICSI, has been effective from 1st January 2018. Adherence to SS-3 is recommendatory. This Guidance Note sets out the explanations, procedures and practical aspects in respect of the provisions contained in SS-3 to facilitate compliance thereof by the stakeholders.
Dividend is a return on the investment made in the share capital of a company, as distinct from the return on borrowed capital, which is in the form of interest.
In commercial usage, the term “Dividend” refers to the share of profits of a company that is distributed amongst its Members.
The term “Dividend” has been inclusively defined in the Act to the effect that it includes Interim Dividend. The Act neither specifically defines the term Dividend nor makes any distinction between Interim and Final Dividend.
For the purposes of SS-3, capitalization of profits in the form of bonus shares is not Dividend.
The allotment of bonus shares does not entail release of any of the assets of the company. The existing shareholders, instead of receiving any moneys out of the undistributed profits, only receive pro rata fresh shares [Sivagnanamal v. Thirumagal Mills Ltd., (1948) 18 Comp. Cases 286 AIR 1949 Mad 521]. There is no distribution of profits among shareholders and hence capitalization of profits in the form of bonus shares would not be construed as Dividend in terms of the Act and for the purposes of this Guidance Note.
Companies licensed under Section 8 of the Companies Act, 2013 or corresponding provisions of any previous enactment thereof are prohibited by their constitution from paying any Dividend to its Members.
SS-3 prescribes a set of principles in relation to the declaration and payment of Dividend and matters related thereto. These are equally applicable to Final as well as Interim Dividend unless otherwise stated.
The principles set out in SS-3 relate to declaration and payment of Dividend on equity as well as preference share capital in accordance with the provisions of the Act and are in respect of Dividend as it relates to a going concern.
Distribution of any amount of profits or assets by the liquidator during winding up or liquidation will not be construed as Dividend.
The principles enunciated in SS-3 are in conformity with the provisions of the Act. In addition, the provisions of the Securities Contracts (Regulation) Act, 1956 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 are applicable to listed companies. Any specific provision relating to Dividend in the Income-tax Act, 1961 or under any other statute shall also be applicable. If due to subsequent changes in the Act or other applicable laws, a particular Standard or any part thereof becomes inconsistent with the Act or other applicable laws, the provisions of the Act or such applicable laws shall prevail.
SS-3 shall not apply to a company limited by guarantee not having share capital and does not deal with Dividend, if any, declared by companies under liquidation.
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