DIVIDEND- UNDER COMPANIES ACT BY BHARAT JAIN POSTED ON 31/3/2007

Summarized DIVIDEND Provisions under Cos Act

Section 205


• Dividend should be approved in Annual General meeting. In case of Interim Dividend, the board can pay but the same should be authorized by Articles and later on should be regularized by AGM..
• Dividend should be paid out of profits.
• No dividend would be declared before providing depreciation (to be worked out as defined in the section)
• Dividend can be declared out of current profits or earlier year’s profits but after providing for depreciation.
• Dividend can be declared out of accumulated reserves in accordance with rules made by CG (refer declaration of dividend out of reserves rule 1975)/ otherwise with the previous approval of CG.
• Dividend can be declared out of money provided by Central Govt in pursuance of guarantee provided by the CG.
• In case of losses in previous financial years, amount of loss or amount provided for that year’s depreciation/ those years whichever is less, shall be setoff against the profit of the year for which dividend is proposed to be declared.
• Central govt may give exemption from providing depreciation to the company for declaring dividend out of profits if the said act is in public interest.
• Depreciation would be provided as per section 350 or any other method prescribed by the Govt. [As per schedule xiv of the Income Tax Act]
• No dividend should be provided before transferring to the reserves % of profits as specified in transfer of Reserves rule 1975.
• The said transfer generally may not exceed 10% of the profit but this section does not prohibit higher % of transfer in accordance with the rules framed under transfer of Reserves rule 1975.
• No dividend can be declared if the co. has violated the provision of section 80A (redemption of irredeemable preference shares)
• Dividend can be only paid in cash and not in kind. But there are some exceptions based on various judgments.



Summarized DIVIDEND Provisions under Cos Act

Section 205 A

• Dividend warrant should be posted with in 30 days of declaration of dividends.

• After completion of 30 days of declaration of dividend, with in 7 days, the unpaid dividend should be transferred to a separate bank account.
• The said bank account should be in scheduled bank and the name of the would be “unpaid Dividend Account of __________ Company Limited/ Company private limited.
• In case of non-transfer to said bank account, the company has to pay interest @ 12% pa and the said interest would be added to the dividend o/s in proportionate.
• After completion of seven year from date of transfer, said unpaid dividend should be transferred to Investor education and protection fund with all the particulars about the beneficiaries. (GRA till 1999)


Section 205 B

• The person entitled for said dividend can apply to CG for the claim till 1999- General Revenue account

Section 205 C
• Following types of unpaid/ unutilized amount should be trf to IEPF:
1. Unpaid dividend- after 7 years from due date for payment
2. Application money- after 7 years from due date for payment
3. Matured deposit/ debentures & accrued interest due there on- after 7 years from due date for payment
4. Grant & donation given to the fund by co./ Govt / Institutions for the purpose of fund and interest thereon out of Investment.

• No claim would lie against the said fund after completion of 7 years from due date.


The entire set of criteria is also applicable to Interim Dividends and the said dividend has to be deposited with in 5 days of declaration to a separate bank account.



Summarized DIVIDEND Provisions under Cos Act

Section 206

• Dividend should be paid to regd shareholders only.

Section 206A
• Dividend should be transf. to special account as mentioned in section 205A in case of pending transfer request/ Bonus shares/ right shares.

Section 207

• In case of failure to distribute dividend with in 30 days of declaration, every director of the co. may be punishable with simple imprisonment of max 3 year & shall also be liable for fine of Rs. 1500/- per day till the default continue.
• Simple interest @ 18% during the period of default is also applicable.