In this editorial author shall discuss about the Interim Dividend. The word interim dividend has been read many time. However, There are so many confusions in professionals in relation to Interim Dividend. The purpose of writing of this article to give some clarity on the term Interim Dividend.
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.
INTRODUCTION
The Company’s Act, 2013 doesn’t contain any provision with regards to Interim Dividend. The AOA usually empower the directors to pay an interim dividend.
Interim Dividend: Dividend paid on shares before the declaration of Final Dividend is Interim Dividend. Some specific features of Interim Dividend:
- It is declared by the Directors in the Meeting of Board of Directors
- It is paid any time between two Annual General Meetings
- It is dividend paid during the financial year.
- It is dividend paid on the basis of less than a full year result.
- It is totally different from the final dividend.
Page Contents
A. Whether Confirmation of Interim Dividend at General Meeting Necessary:
The payment of interim dividend is not condition upon the subsequent declaration of such a dividend by a General Meeting. Since the Act nowhere provides, unlike in the case of final dividend, that interim dividend must be approved or confirmed or ratified by the members in General Meeting. Furthermore, section 102 of Companies Act, which requires a final dividend to be declared at an annual general meeting refer only to final dividend which has been recommended by the board pursuant to Section 134 while approving the boards report.
The Act doesn’t provide that interim dividend should be declared at an Annual General Meeting.
B. Whether Interim Dividend is DEBT?
A final dividend once declared is a debt payable by the Company to its registered share holders so that a shareholder can recover it by a suit in a court of law. However, interim dividend is not a debt when the board decides to pay it.
The nature of the interim dividend is such that it gives no right to the shareholders to receive it merely on the passing of the resolution by the board.
It is settled law in England and India that in case of interim dividend which the directors have resolved to pay, it is open to them at any time before payment to review their decision and resolve not to pay. This was established in England early as 1901.
The declaration of dividend and payment of divided are quite separate. On payment undoubtedly, interim dividend become the property of the shareholders.
C. Sources of Payment of interim Dividend:
The interim Dividend can be declared and paid out of the followings:
1) Surplus in the Profit & Loss account; or
2) Out of Profits of the financial year in which such 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:
While declaring the Interim Dividend, the Board shall 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.
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
D. Payment of interim Dividend In case a Company incurred losses in current financial year:
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 year– Section 123(3).
Note:
- In computing profits any amount representing unrealized 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
E. Examples on Payment of Interim Dividend
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FY 22-23 |
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Amount in Lacs |
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Situation |
FY 20-21 |
FY 2021-22 |
Quarter I |
Quarter II |
Quarter III |
Quarter IV |
Profit available for dividend |
Remarks |
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1 |
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1.01 |
0 |
100 |
10 |
50 |
October 2022-23 |
160 |
Dividend can be declare up to 160 |
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1.02 |
0 |
50 |
10 |
-100 |
October 2022-23 |
0 |
Accumulated profit is negative of 40 Lacs. Hence, no dividend distribution profit available. |
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1.03 |
0 |
50 |
10 |
50 |
-40 |
january 2022-23 |
70 |
Dividend can be declare up to 70 |
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1.04 |
0 |
100 |
10 |
10 |
-70 |
January 2022-23 |
50 |
As profit for the current year is negative of 50L, dividend can’t exceed average dividends declared by the company during immediately preceding three financial years |
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2 |
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2.01 |
-20 |
50 |
June for FY 22-23 |
30 |
Dividend can be declare up to 30 |
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2.02 |
50 |
-10 |
-20 |
July for FY 22-23 |
20 |
As profit for the current year is negative of 20L, dividend can’t exceed average dividends declared by the company during immediately preceding three financial years |
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3 |
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3.01 |
0 |
-10 |
10 |
50 |
October for FY 22-23 |
50 |
Dividend can be declared up to 50 |
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3.02 |
0 |
-10 |
10 |
-50 |
40 |
January 22-23 |
0 |
Profit not available for distribution of dividend |
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3.03 |
0 |
-10 |
-50 |
100 |
October 22-23 |
40 |
Dividend can be declare up to 40 |
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).
Author Bio
Very Comprehensive article on Interim Dividend.Thanks a lot sir!