DECLARATION AND PAYMENT OF DIVIDEND

DECLARATION AND PAYMENT OF DIVIDEND

Basically, Dividend is the sum of money distributed among shareholders out of its profits by a company. We can normally say its a share of profit. The Companies Act, 2013 and Listing regulations provides the provisions regarding declaration and payment of dividend by a Company. Let’s discuss and understands the provisions of dividend:

“Dividend” as per Section 2(35) of Companies Act, 2013, Dividend includes any interim dividend.

 

Declaration of Dividend      

Section 123 says that:

 

(1) A company shall declare or pay dividend for any financial year only out of—

 

a)	Ø  The profits of the Company for that year arrived at after providing for depreciation in accordance with section 123(2), or
	Ø  The profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with the provisions of that sub-section and remaining undistributed, or
	Ø  Out of both.

 

             Note: In computing profits, following amount shall be excluded:

·         Any amount representing unrealised gains, notional gains or

·         revaluation of assets and

·         any change in carrying amount of an asset/ liability on measurement of the asset/ liability at fair value; or

 

b)      Money provided by the CG or a SG for the payment of dividend by the company in pursuance of a guarantee given by that Government:

 

Other Conditions to fill before the declaration of any dividend in any financial year

 

Ø  A company may transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company:

 

Ø  Dividend shall be declared or paid only from free reserves.

 

Ø  Company shall declare dividend only after carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year.

 

 Q- If Company is owing to inadequacy or absence of profits in any financial year?

 

👇In such case, any company proposes to declare dividend out of the accumulated profits earned by it in previous years and transferred by the company to the free reserves,

 Such declaration of dividend shall be made in accordance with rule 3 in this behalf: 

 

Rule 3: Declaration of Dividend Out of Reserves/accumulated profits

 

In the event of inadequacy or absence of profits in any year, following conditions to be fulfilled to declare dividend out of free reserves:-

 

(1) The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the 3 years immediately preceding that year:

 

Exception: This sub-rule shall not apply to a company, which has not declared any dividend in each of the 3 preceding financial year.

 

(2) The total amount to be drawn from such accumulated profits shall not exceed 1/10 of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement.

 

(3) The amount so drawn shall first be utilised 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.

 

(4) The balance of reserves after such withdrawal shall not fall below 15% of its paid up share capital as appearing in the latest audited financial statement.

 

(5) No dividend shall be declared by company unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company of the current year.

 

 

(2) For the purposes of Section 123(1)(a), depreciation shall be provided in accordance with the provisions of Schedule II.

 

 Interim dividend

 Section 123(3) The Board of Directors of a Company may declare interim dividend:

 

·         During any financial year or

·         at any time during the period from closure of financial year till holding of the AGM

 

·         Interim Dividend can be declared out of:

Ø  the surplus in the P&L A/c or profits of the financial year for which such interim dividend is sought to be declared or

Ø  profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend:

 

If, in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend,

 

Ø  Such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding 3 financial years.

 

 

The amount of dividend to be deposited into separate account:

(4) The amount of the dividend, including interim dividend, shall be deposited in a scheduled bank in a separate account within 5 days from the date of declaration of such dividend.

 

Payment of Dividend

(5) The dividend shall be paid by a company in respect of any share therein:

 

Ø  to the registered shareholder of such share or

Ø  to his order or to his banker

Ø  And shall be payable cash, not in kind.

 

Exception: Nothing in this sub-section shall be deemed to prohibit the capitalisation of profits or reserves of a company for the purpose of issuing 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:

 

However, any dividend payable in cash may be paid by cheque or warrant or in any electronic mode to the shareholder entitled to the payment of the dividend.

 

Q- If Company Fails to comply the provisions of Section 73 and section 74?

(6) A company shall not declare any dividend on its equity shares which fails to comply with the provisions of sections 73 and 74 until such failure continues.

 

      

Unpaid Dividend Account                                                              

                                                                                                                                      

Section 124

 

(1) Where a dividend has been declared by the company but has not been paid or claimed within 30 days from the date of the declaration to any shareholder entitled to the payment of the dividend:

                                                                     ↓↓↓↓↓↓

Ø 

the company shall, within 7 days from the date of expiry of the said period of 30 days,

                                     ↓↓↓↓↓

Ø  Transfer the total amount of dividend which remains unpaid or unclaimed to a special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account.

 

(2) Within a period of 90 days of making any transfer of an amount u/s 124(1) to the Unpaid Dividend Account, the company shall:

 

Ø  prepare a statement containing the names, their last known addresses and the unpaid dividend to be paid to each person and

Ø  place it on the web-site of the Company, if any, and

Ø  Also on any other web-site approved by the CG for this purpose, in such form, manner and other particulars as prescribed in Rule 5.

 

 

Rule 5:  Statement to be furnished to the Fund

(8) Every company shall within 60 days after the holding of AGM or the date on which it should have been held as per the provisions of section 96 of the Act, whichever is earlier and every year thereafter till completion of the 7 years period:

Ø  identify the unclaimed amounts, as referred in section 125(2) of the Act, as on the date of closure of financial year the account of which are to be adopted in the AGM as per section 137(1) of the Act,

 

Ø  Separately furnish and upload on its own website and also on website of Authority or any other website as may be specified by the Government, a statement or information of unclaimed and unpaid amounts separately for each of the previous seven financial years through Form No. IEPF-2,

Ø  Such statement containing following information, namely:-

a)      the names and last known addresses of the persons entitled to receive the sum;

b)      the nature of amount;

c)      the amount to which each person is entitled;

d)      the due date for transfer into the Investor Education and Protection Fund; and

e)      such other information as may be considered necessary.

 

 

Q- If Default is made by the Company in transferring amount as per section 124(1)  to unpaid dividend account?

(3) If any default is made in transferring the total amount referred to in section 124(1) or any part thereof to the Unpaid Dividend Account of the company,

 

Ø  It shall pay, from the date of such default, interest on so much of the amount as has not been transferred to the said account,

Ø  at the rate of 12 % per annum and

Ø  The interest accruing on such amount shall ensure to the benefit of the members of the company in proportion to the amount remaining unpaid to them.

 

(4) Any person claiming to be entitled to any money transferred u/s 124(1) to the Unpaid Dividend Account of the company may apply to the company for payment of the money claimed.

 

(5) Any money transferred to the Unpaid Dividend Account of a company in pursuance of this section which remains unpaid or unclaimed for a period of 7 years from the date of such transfer:

 

Ø  shall be transferred by the company along with interest accrued, if any, thereon to the Fund (Investor Education and Protection Fund) and 

Ø  The company shall send a statement of the details of such transfer to the Authority.

Ø  that authority shall issue a receipt to the company as evidence of such transfer.

 

(6) All shares in respect of which dividend has not been paid or claimed for 7 consecutive years or more shall be transferred by the company in the name of IEPF along with a statement containing such details as prescribed in Rule 6:

 

Rule 6: Manner of transfer of shares u/s 124(6) to the Fund

 

(1) The shares shall be credited to DEMAT Account of the IEPF Authority within 30 days of such shares becoming due to be transferred to the Fund:

 

Exception: In case the beneficial owner has encashed any dividend warrant or any dividend amount has been credited to bank account of the owner of such shares during the last 7 years,

Ø  such shares shall not be required to be transferred to the Fund even though some dividend warrants may not have been encashed:

 

Transfer of shares to the IEPF

 

Ø  Transfer shall be deemed to be transmission of shares and

Ø  The procedure to be followed for transmission of shares shall be followed.

 

 

(2) For the purposes of effecting transfer of such shares,

 

Ø  The Board shall authorise the Company Secretary or any other person to sign the necessary documents.

 

Procedure for transferring the shares

 

(3) The Company shall follow the following procedure while transferring the shares, namely:-

 

(a)    The Company shall inform the shareholder concerned,

·         at the latest available address,

·         regarding transfer of shares

·         3 months before the due date of transfer of shares and

·         also simultaneously publish a notice in the leading newspaper in English and regional language having wide circulation informing the concerned that the names of such shareholders and their folio number or DP ID - Client ID are available on their website duly mentioning the website address.

 

 

(b)    The company shall not transfer such shares to the Fund:

Ø  where there is a specific order of Court or Tribunal or statutory Authority restraining any transfer of such shares and payment of dividend or where such shares are pledged or hypothecated under the provisions of the Depositories Act, 1996 or shares already been transferred under sub-rule (1) above.

 

However, the company shall furnish details of such shares and unpaid dividend to the Authority in Form No. IEPF 3 within 30 days from the end of financial year.

 

(c)    For the purposes of effecting the transfer, where the shares are dealt with in a depository-

 

(i)      The Company shall inform the depository by way of corporate action, where the shareholders have their accounts for transfer in favour of the Authority.

 

(ii)    On receipt of such intimation, the depository shall effect the transfer of shares in favour of DEMAT account of the Authority.

 

(d)    For the purposes of effecting the transfer shares held in physical form-

 

(i)        the Company Secretary or the person authorised by the Board shall make an application to the company for issue of a new share certificate on behalf of the concerned shareholder;

 

(ii)      on receipt of the application under clause (a), a new share certificate for each such shareholder shall be issued and it shall be stated on the face of the certificate that

 

“Issued in lieu of share certificate No..... for the purpose of transfer to IEPF” and the same be recorded in the register maintained for the purpose;

 

(iii)    particulars of every share certificate shall be in Form No. SH-1 as specified in the Companies (Share Capital and Debentures) Rules, 2014;

 

(iv)    after issue of a new share certificate, the company shall inform the depository by way of corporate action to convert the share certificates into DEMAT form and transfer in favour of the Authority.

 

(4) The company shall make such transfers through corporate action and shall preserve copies for its records.

 

(5) While effecting such transfer, the company shall send a statement to the IEPF Authority in Form No. IEPF-4 within 30 days of the corporate action taken under clause (c) of sub-rule (3) of rule 6 containing details of such transfer and the company shall also attach a copy of the public notice published under clause (a) of sub-rule (3) of rule 6 in Form No IEPF-4.

 

(6) The voting rights on shares transferred to the Fund shall remain frozen until the rightful owner claims the shares:

 

However, for the purpose of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the shares which have been transferred to the Authority shall not be excluded while calculating the total voting rights.

 

(7) The company shall maintain all such statements filed under sub – rule (5) in the same format along with all supporting documents and the Authority shall have the powers to inspect such records.

 

(8) All benefits accruing on such shares like bonus shares, split, consolidation, fraction shares and the like except right issue shall also be credited to such DEMAT account by the company which shall send a statement to the Authority in Form No. IEPF-4 within 30 days of the corporate action containing details of such transfer.

 

(9) The shares held in such DEMAT account shall not be transferred or dealt with in any manner whatsoever except for the purposes of transferring the shares back to the claimant as and when he approaches the Authority or in accordance with sub-rule (10) and (11).

 

(10) If the company is getting delisted, the Authority shall surrender shares on behalf of the shareholders in accordance with the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 and the proceeds realised shall be credited to the Fund and a separate ledger account shall be maintained for such proceeds.

 

(11) In case the company whose shares or securities are held by the Authority is being wound up, the Authority may surrender the securities to receive the amount entitled on behalf of the security holder and credit the amount to the Fund and a separate ledger account shall be maintained for such proceeds.

 

(12) Any further dividend received on such shares shall be credited to the Fund and a separate ledger account shall be maintained for such proceeds.

 

(13) Any amount required to be credited by the companies to the Fund as provided under sub-rules (10), (11) and sub-rule (12) shall be remitted into the specified account of the IEPF Authority maintained in the Punjab National Bank 6[and the details thereof shall be furnished to the Authority in Form No. IEPF 7 within thirty days from the date of remittance or within thirty days from the date of enforcement of these Rules, as the case may be.]

 

(14) Authority shall furnish its report to the Central Government as and when noncompliance of the rules by companies came to its knowledge.

 

However, any claimant of shares transferred above shall be entitled to claim the transfer of shares from IEPF in accordance with such procedure as prescribed in Rule 7.

 

 

Rule 7:  Refund to claimants from Fund

 

(1)    Any person whose shares, unclaimed dividend, matured deposits, matured debentures, application money due for refund, or interest thereon, sale proceeds of fractional shares, redemption proceeds of preference shares etc., has been transferred to the Fund:

Ø  may claim the shares under proviso to section 124(6) or

Ø  apply for refund u/s 125(3)(a) or

Ø  under proviso to 125(3), as the case may be, to the Authority

Ø  by submitting an online application in Form IEPF-5 available on the website www.iepf.gov.in along with fee specified by the Authority from time to time in consultation with the CG.

 

(2) Upon submission, Form No. IEPF-5 shall be transmitted online to the Nodal Officer of the company for verification of claim:

 

Provided that the claimant after making an application in Form No. IEPF-5 under sub rule 1, shall send original physical share certificate, original bond, deposit certificate, debenture certificate, as the case may be, along with Indemnity Bond, Advance Receipts, any other document as enumerated in Form No. IEPF-5, duly signed by him, to the Nodal Officer of the concerned company at its registered office for verification of the claim.

 

(2A) Every company which is required to credit amounts or shares to the fund or has deposited the amount or transferred the shares to the Fund shall nominate a Nodal Officer, who shall either be a Director or Chief financial Officer or Company Secretary of the company, for the purposes of verification of claims and coordination with Investor Education and Protection Fund Authority:

 

Provided that a company may appoint one or more Officer as Deputy Nodal Officer to assist the Nodal Officer for the purposes of verification of claim and for coordination with Investor Education and Protection Fund Authority:

 

Provided further that the Nodal Officer shall be solely liable for all actions of any officer appointed as Deputy Nodal Officer:

 

Provided also that in case a company fails to appoint Nodal Officer, every director of the company shall be deemed to be nodal officer and be liable for any failure to comply with requirement of these rules.

 

(2B) The details of the Nodal Officer and Deputy Nodal Officer duly indicating his or her designation, postal address, telephone and mobile number and company authorized e-mail ID shall be communicated to the Investor Education and Protection Fund Authority in Form No. IEPF – 2 within fifteen days from the date of publication of these rules and the company shall display the name of Nodal Officer and his e-mail ID on its website:

 

Provided that any change in the Nodal Officer or his details shall be communicated to the Authority through Form No. IEPF-2 within seven days of such change along with board resolution thereof.

 

(3) The company shall, within 30 days from the date of receipt of claim, send an online verification report to the Authority after verification of details in Form No. IEPF-5 in the format specified by the Authority along with all the documents submitted by the claimant and shall attach the scanned copy of all the original documents submitted by the claimant in physical form duly certified by its Nodal Officer alongwith the e-verification report along with a scanned copy of both sides of original physical share certificate or original bond or deposit or debenture certificate/s duly cancelled and certified:

 

Provided that if the online verification report is not sent by the company within thirty days of filing of claim, the company may do so by paying additional feeof fifty rupees for every day subject to maximum of two thousand and five hundred rupees:

 

Provided further that the company shall be liable to maintain the original documents submitted to it by the  claimant and shall produce such documents whenever required:

 

Provided also that in case of non-receipt of verification report along with documents by the Authority after the expiry of 60 days from the date of filing of Form No. IEPF-5, the Authority may reject Form No. IEPF-5, after sending a communication to the claimant and the concerned company, on the e-mail address of the claimant and the company, to furnish response within a period of fifteen days:

 

Provided also that for failure to submit verification report of the claim in accordance with these rules, the  company and its Nodal Officer shall be punishable as per the provisions of the Act.

 

Explanation.-In case (i) loss of original physical share certificate or original bond or deposit or debenture  certificate or proof of entitlement, the company and the claimant shall follow the procedure as laid down in the Companies (Share Capital and Debenture) Rules, 2014 , theSecurities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulation, guidelines, procedures and circulars issued from time to time and Schedule IIIof these rules and attach certified copies of all documents as may be required under the said rules or guidelines with the e-verification report; (ii) In addition, the company shall attach a scanned copy of both sides of share certificate generated under clause (d) of sub-rule (3) of rule 6 of these rules along with the e-verification report;(iii) The Company shall be solely responsible for collecting original physical share certificate or original bond or deposit or debenture certificate or proof of entitlement from the claimant and shall be liable for any misuse thereof.

 

 

(4) After verification of the entitlement of the claimant-

 

(a)    to the amount claimed, the Authority and then Drawing and Disbursement Officer of the Authority shall present a bill to the Pay and Accounts Office for e- payment as per the guidelines,

 

(b)   to the shares claimed, the Authority shall issue a refund sanction order with the approval of the Competent Authority and shall credit the shares to the DEMAT account of the claimant to the extent of the claimant’s entitlement.

 

(5) The Authority shall cause a note in its records to be made of all the payments made.

 

(6) An application received for refund of any claim under this rule duly verified by the concerned company shall be disposed off by the Authority within 60 days from the date of receipt of the verification report from the company.

(7) Where the Authority, on examining any application for claim, finds it necessary to call for further information or finds such application or e-form or document to be defective or incomplete in any respect,

Ø  the Authority shall give intimation of such information called for or defects or incompleteness,

Ø  by e-mail on the email address of the claimant and

Ø  the company to re-submit such application or e-Form or document within 15 days from the date of receipt of such communication,

Ø  if company fails, Authority may reject the claim or e-form No. IEPF-5:

 

 

However, if such information or incompleteness is called from the claimant, he shall file the e-form and shall send such documents as called for within 15 days, duly signed by him, to the Nodal Officer of the concerned company at its registered office for verification of the claim and company shall send a revised verification report:

 

 Moreover, if any such information or incompleteness is called from the company, the company shall file the revised verification report and shall send such documents as called for within 30 days:

 

 Provided also that the provisions of sub-rule (3) of rule 7 shall apply mutatis mutandis to this sub-Rule.

 

(8) In case, claimant is a legal heir or successor or administrator or nominee of the registered share holder:

 

Ø  the claimant shall ensure to submission of self-attested scanned copy of all documents detailed in Schedule II of these rules online along with the Form No. IEPF-5:

 

Q-What if securities held in physical form are lost by him?

Ø  He has to ensure to submission of self-attested scanned copy of additional documents detailed in Schedule III of these rules online along with the Form No. IEPF-5:

 

Q-Where to submit all these documents?

Ø  The claimant shall submit in original all these documents duly signed by him, to the Nodal Officer of the concerned company at its registered office for verification of the claim.

 

(9) In case, claimant is a legal heir or successor or administrator or nominee of any other registered security or in cases where request of transfer or transmission of shares is received after the transfer of shares by company to the Authority,

Ø  the company shall verify all requisite documents required for registering transfer or transmission and

Ø  shall issue letter to the claimant indicating his entitlement to the said security and

Ø  furnish a copy of the same to the Authority while verifying the claim of such claimant through its e-verification report:

 

However, the authority shall dispose such request of transfer or transmission based on the e-verification report of the company subject to verification of such request.

 

(10) The claimant shall file only one consolidated claim in respect of a company in a financial year.

 

(11) (a) The company shall be liable under all circumstances whatsoever to indemnify the Authority in case of any dispute or lawsuit that may be initiated due to any inaptness or inconsistency or disparity in the verification report or otherwise and

the Authority shall not be liable to indemnify the security holder or Company for any liability arising out of any discrepancy in verification report submitted etc., leading to any litigation or complaint arising thereof.

 

(b)Any fraudulent claim by the claimant shall be deemed to be fraud within the meaning of section 447 of the Act and the claimant shall be liable accordingly.

 

(c) If any person deceitfully personates an owner of any security or of any share warrant or coupon issued in pursuance of this Act and thereby files any claim to obtain or attempts to obtain any such security or interest or any such warrant or coupon due to the lawful owner, he shall be punishable under sections 57, 447 and 448 of the Act.

 

Explanation—For the removal of doubts, it is hereby clarified that in case any dividend is paid or claimed for any year during the said period of seven consecutive years, the share shall not be transferred to IEPF.

 

 

Failure to comply with section 124

 

(7) If a company fails to comply with any of the requirements of this section:

 

The company  shall be punishable Fine:	Min.-5 lakh rupees
	Max.- 25 lakh rupees and
Every officer in default shall be punishable with fine	Min.-1 lakh rupees
	Max.- 5 lakh rupees

 

           

Punishment for Failure to Distribute Dividends   

Section 127

Where a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within 30 days from the date of declaration to any shareholder entitled to the payment of the dividend:

 

·         Every director of the company shall, if he is knowingly a party to the default, be punishable with

Ø  Imprisonment: Up to 2 years and

Ø  fine: minimum of Rs. 1000/ day during which such default continues and

 

·         The company shall be liable to pay simple interest at the rate of 18% per annum during the period for which such default continues:

 

Exception: There shall be deemed to be no offence committed in following situations:—

 

a.       where the dividend could not be paid by reason of the operation of any law;

 

b.      where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with and the same has been communicated to him;

 

c.       where there is a dispute regarding the right to receive the dividend;

 

d.      where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder; or

 

e.       Where, for any other reason, the failure to pay the dividend or to post the warrant within the period under this section was not due to any default on the part of the company.

 

 

Provisions as per SEBI (Listing Obligations and Disclosures Requirements) Regulations, 2015

 

Dividends

Regulation 43:

(1) The listed entity shall declare and disclose the dividend on per share basis only.

 

(2) The listed entity shall not forfeit unclaimed dividends before the claim becomes barred by law and such forfeiture, if effected, shall be annulled in appropriate cases.

 

 

Dividend Distribution Policy

Regulation 43A:

(1) The top 500 listed entities based on market capitalization (calculated as on March 31 of every financial year) shall formulate a dividend distribution policy which shall be disclosed in their annual reports and on their websites.

 

(2) The dividend distribution policy shall include the following parameters:

 

(a)    the circumstances under which the shareholders of the listed entities may or may not expect dividend;

(b)   the financial parameters that shall be considered while declaring dividend;

(c)    internal and external factors that shall be considered for declaration of dividend;

(d)   policy as to how the retained earnings shall be utilized; and

(e)    parameters that shall be adopted with regard to various classes of shares:

 

However, if the listed entity proposes to declare dividend on the basis of parameters in addition to clauses (a) to (e) or proposes to change such additional parameters or the dividend distribution policy contained in any of the parameters, it shall disclose such changes along with the rationale for the same in its annual report and on its website.

 

(3) The listed entities other than top 500 listed entities based on market capitalization may disclose their dividend distribution policies on a voluntary basis in their annual reports and on their websites.

 

Payment of dividend or interest or redemption or repayment

Regulation 12:

The listed entity shall use any of the electronic modes of payment facility approved by the Reserve Bank of India, in the manner specified in Schedule I, for the payment of the following:

(a) dividends;

(b) interest;

(c) redemption or repayment amounts:

 

However, where it is not possible to use electronic mode of payment, ‘payable-at-par’ warrants or cheques may be issued: 

But, where the amount payable as dividend exceeds 1500 rupees, the ‘payable-at-par’ warrants or cheques shall be sent by speed post.

  

Important update:

Relaxation for filings of various forms under section 124 and section 125 of the Companies Act 2013 r/w IEPFA (Accounting, Audit, Transfer and Refund) Rules 2016 in view of emerging situation due to outbreak of COVID– 19

In this regard MCA has already allowed filing in MCA-21 without additional fees till 30^th September 2020 through General Circular No. 11/2020 dated 24 March 2020 and general circular 12/2020 dated 30^th March 2020.