Declaration-of-Dividend-under-Companies-Act-2013

The process of declaring and paying dividends under the Companies Act, 2013, and the Companies (Declaration & Payment of Dividend) Rules, 2014 involves several key steps and conditions:

Sources for Declaration of Dividend

Dividends can be declared from:

1. Profit for the current financial year.
2. Profit from the previous financial year.
3. Both current and previous financial years' profits.
4. Money provided by the Central Government or State Government if a guarantee is given by them.

Note: Dividends cannot be declared from unrealized gains, notional gains, or revaluation of assets.

Restrictions on Declaring Dividend

A company cannot declare dividends if it has defaulted in any of the following payments:

1. Redemption of debentures or payment of interest on them.
2. Redemption of preference shares.
3. Creation of a capital redemption reserve.
4. Payment of previously declared dividends.
5. Repayment of any term loan to banks or financial institutions.

Dividend in Case of Absence or Inadequacy of Profits

According to Rule 3 of the Companies (Declaration & Payment of Dividend) Rules, 2014, dividends can be declared from free reserves provided:

1. The rate of dividend does not exceed the average of the last three years' profits.
2. The total amount to be drawn for dividend payment does not exceed 10% of the paid-up capital plus free reserves.
3. The amount drawn is first used to set off losses from previous financial years.
4. The balance in the free reserves after such withdrawal shall not fall below 15% of the paid-up capital and free reserves.
5. Dividends should not be declared unless the losses from the previous year have been set off and the current year's depreciation has been accounted for.

Declaration of Interim Dividend

An interim dividend can be declared at any time after the closure of the financial year until the date of the Annual General Meeting (AGM):

1. From the profit generated in the last financial year.
2. From the profit generated in the financial year up to the immediately preceding quarter of the financial year in which the interim dividend is to be declared.

If the company has made a loss in the last financial year:

1. The rate of dividend shall not exceed the average of the previous three years' rate of dividend.
2. As per Secretarial Standard 3 (SS-3), no interim dividend shall be declared from the paid-up capital and free reserves if the company has made a loss.

Payment of Dividend (Section 123 & 124)

1. The dividend amount should be deposited in a separate bank account within 5 days of declaration.
2. The dividend must be paid to shareholders within 30 days of its declaration.
3. If any amount remains unpaid, it should be transferred to the unpaid dividend account within 7 days after the expiry of the 30-day period.
4. A list of shareholders with unpaid dividends should be prepared and published on the company's website within 90 days of the transfer to the unpaid dividend account.
5. If the dividend remains unpaid for 7 years, it must be transferred to the Investor Education & Protection Fund (IEPF) along with a statement in Form IEPF-04.
6. In case of default in payment, an interest of 12% per annum will be applicable.

Procedure for Refund from Investor Education & Protection Fund (IEPF)

1. Apply using Form IEPF-5.
2. Submit an application to the company along with the required documents simultaneously.
3. The company will send a verification report to the authority within 15 days of receiving the claim.
4. If the claim is not received within 90 days of filing Form IEPF-5, the authority will reject the claim but will give the claimant an opportunity to furnish a response within 30 days.
5. The authority will dispose of the claim amount within 60 days from the date of receipt of the verification report from the company.

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Article Compiled by:-

~Neel Lakhtariya

(LegalMantra.net Team)

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.