Procedure for Declaration and Payment of Interim Dividend

♦ Meaning of Interim Dividend: As per section 123(3) of Companies Act, 2013, a dividend is said to be an Interim dividend, if it is declared by the Board of directors during any financial year out of surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared.

♦ Conditions:

• No company can pay dividend in any year without charging depreciation in the profit and loss account for the current year and that there is no balance of un provided depreciation of any earlier year or years.
• Company which has failed to comply with the requirements of section 73 and 74 related to prohibition and repayment of Deposits accepted from the public shall not declare any dividend on its equity shares. [Section 123(6)]
• Articles must authorize for payment of dividend, the board will not be able to recommend dividend for the approval members. Similarly, unless there is a provision in the articles authorizing the Board to approve for payment of interim dividend, the Board cannot take any action in respect of payment of interim dividend.
• Opening of a separate bank account for making payment of dividend and deposit the amount of dividend into the account within a period of 5 days of its declaration.
• Approval of members at the general meeting for Interim dividend and also in the director’s report  for the approval of members at the forthcoming AGM.

♦ Procedure:

Step 1: The Articles must provide power to pay Interim dividend and Board must be authorized to declare Interim dividend.

Step 2: A Board Meeting should be called by issuing a notice and rate at which dividend is payable must be specifically stated in the resolution passed. It must state time, date and venue of the meeting and details of the business to be transacted thereat and be sent to all the directors for the time being in India and to all other directors, at their usual address in India.

Step 3: At the Board meeting, following matters must be considered:

• It is prudent on the part of the directors to have a proforma profit and loss account and balance sheet of the company prepared upto the latest possible date of the financial year in respect of which interim dividend is proposed to be declared and provision must be made for all the working expenses and depreciation for the whole year.
• Closure of register of members for declaration of record date for payment of interim dividend.
• Printing of dividend warrants.
• The Dividend warrant must be accompanied by a statement in writing showing the amount of Dividend paid and the amount of tax deducted at source, if any.
• Open the “Interim Dividend Account of …………. Ltd.” with the bank and payment must be made within 5 days of declaration by the Board. The amount so transferred shall not be utilized for any other purpose. The same shall be paid within 30 days of declaration by the Board.

Step 4: Pass Board meeting resolution for payment of Interim dividend

Step 5: Prepare a statement of dividend in respect of each shareholder containing the following details:

(a) Name and address of the shareholder with ledger Folio No.

(b) No. of shares held.

(c) Dividend payable

Step 6: Ensure that the DIVIDEND DISTRIBUTION TAX is paid to the tax authorities within the prescribed time.

Effective Rate of DDT @ 16.995%. (15 % surcharge @10 % + EC @ 2 %+ SHEC @ %). It can be paid out of either current or accumulated profits. DDT shall be paid to Central government within 14 days from the date of declaration, distribution or payment of dividend whichever is earlier by the principal officer of the Company.

Step 7: No RBI approval is required for payment of dividend to shareholders abroad, in case of investment made on repatriation basis.

Step 8: It shall be payable in cash and may be paid by cheque or warrant or sent through the post direct to the registered address of the shareholder within 30 days of the declaration of dividend. In case of joint shareholders, dispatch the dividend warrant to the first named shareholder or as directed by them.

Step 9: Approval of dividend in next Annual General meeting.

(Author- CS Ritu Nagpal, AGM_corporate Law, G. K. Kedia & Co.)