Provisions of Companies Act 2013 on Dividend

Tuesday, July 12, 2016

Section 2(35) of the Companies Act, 2013 says:

“dividend” includes any interim dividend.

Section 123 of the Act:

Declaration of Dividend: No Company to declare and pay except:

  • Out of the profits (after depreciation), or out of the accumulated profits (after depreciation), or out of both;
  • Out of money provided by the Central or State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government.

In case of inadequate or absence of profits – Company can propose the dividend according to “the Companies (Declaration and Payment of Dividend) Rules, 2014” :

  • Only free reserves can be used for it.
  • Depreciation will be calculated as per Schedule II of the Act
  • Interim dividend can be declared by the Board of Directors during any financial year out of the 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:

In case of loss during the 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.

  • Whom and How: Dividend can be paid only to registered shareholders of such share or to his order or to his banker and should be paid in ca

    This sub-section does not prohibit the capitalization of profits or reserves of a company for issuing of fully paid-up bonus shares or paying up any amount for the time being unpaid on any shares held by the members of the company.

  • Restrictions: If any failure is there with relation to section 73 or 74, dividend on its equity shares cannot be declared.
  • Time Limit: The amount of the dividend and interim dividend must be deposited in a scheduled bank in a separate account within five days from the date of declaration of such dividend.

Unpaid dividend or unclaimed dividend i.e. after thirty days from the date of the declaration, the company has to transfer the total amount of unpaid/ unclaimed dividend to a special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account – within seven days from the date of expiry of the said period of thirty days.

  • Subsequent Compliances: Within 90 days of transfer of amount to the Unpaid Dividend Account, Company has to prepare a statement (containing details of names, their last known addresses, and unpaid dividend), which should be placed on its website if any, and also on any website approved by the Central Government for this purpose as per prescribed form and manner.
  • Interest on transfer of amounts: If any default made in transferring the amount to the Unpaid Dividend Account of the company – interest will be charged @ 12% p.a., which should be distributed to member
  • Investor Education and Protection Fund: Unpaid Dividend which remains unpaid or unclaimed for a period of 7 years from the date transfer should be transferred with interest accrued to Investor Education and Protection Fund and the company will submit a statement of details of such transfer to the administrators of the Fund.
  • Penal Provisions:

For the Company if fails to comply any Provision – fine of not less than Rs. 5,00,000 which may extend to Rs. 25,00,000, and

For Officer-in-Default – fine of not less than Rs. 1,00,000 which may extend to Rs. 5,00,000

  • In case of inadequate or absence of profits – Company can propose the dividend according to The Companies (Declaration and Payment of Dividend) Rules, 2014
  •  The rate of dividend declared cannot exceed the average of the rates declared by the Company in three years immediately preceding that year. (this provision shall not apply if the company has not declared any dividend in each of the three financial year)
  • The total amount to be drawn from accumulated profits cannot be more than 10% of its paid- up share capital and free reserves as per the latest audited financial statement.
  • Accumulated Profits shall first be utilized 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.
  • After dividend, reserves should not be less than 15% of its paid up share capital as per latest audited financial statement.

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