CHAPTER VIII
DECLARATION AND PAYMENT OF DIVIDEND
CS. P RAJESH KUMAR JAIN
Company Secretary
HIL Limited
COVERAGE (Sec 123 - 127)
•
•
•
•
123- Declaration of dividend.
124- Unpaid dividend account.
125- Investor Education and Protection Fund.
126- Right to dividend, rights shares and bonus
shares to be held in abeyance pending
registration of transfer of shares.
• 127- Punishment for failure to distribute
dividends.
Section 123- Declaration of Dividend....
(1) Dividend shall be declared or paid by a company for any financial year —
(a) out of the profits of the company for that year arrived at after providing
for depreciation,
or
out of the profits of the company for any previous financial year or years
arrived at after providing for depreciation and remaining undistributed,
or
out of both; or
(b) out of money provided by the Central Government or a State Government
for the payment of dividend by the company in pursuance of a guarantee
given by that Government.
A company may, before the declaration of any dividend in any financial year,
transfer such percentage of its profits for that financial year as it may consider
appropriate to the reserves of the company.
Section 123- Inadequacy or Absence Of Profits
In the event of inadequacy or absence of profits in any year, a company may declare
dividend out of its accumulated profits, free reserves and surplus subject to
the following conditions:
(a) The rate of dividend declared shall not exceed the average of the preceding
three years rates of dividend unless it has not declared any dividend in each of
the three preceding financial year.
(b) The total amount to be drawn from such accumulated profits shall not exceed
1/10th of its paid-up share capital and free reserves as per its latest audited
financial statement.
(c) 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.
(d) The balance of reserves after such withdrawal shall not fall below fifteen per
cent of its paid up share capital as per the latest audited financial statement.
(e) No dividend shall be declared unless carried over losses and depreciation are
set off against profit of the company of the current year.
FREE RESERVES
“free reserves” means such reserves which, as per the
latest audited balance sheet of a company, are
available for distribution as dividend. provided that—
(i) any amount representing unrealised gains, notional
gains or revaluation of assets, whether shown as a
reserve or otherwise, or
(ii)any change in carrying amount of an asset or of a
liability recognised in equity, including surplus in
profit and loss account on measurement of the
asset or the liability at fair value, shall not be treated
as free reserves.
Depreciation
123 (2) Depreciation shall be provided in accordance with the
provisions of Schedule II.
Important highlights from the Schedule II are as follows:
• -- The useful life or residual value of an asset have been specified in
Part C of the Schedule. Companies will be required to give
disclosure for cases where the useful life or residual value is
different from the useful life or residual value as specified in Part C
of the Schedule.
• -- It is clarified in the 2013 Act that the requirements of Part C will
not be applicable for companies in respect of which the useful life
or residual value is notified by a regulatory authority.
Interim Dividend
123 (3) The Board of Directors of a company may declare
interim dividend during any financial year out of the
surplus in the Profit and Loss Account and out of
current year profits.
Provided that 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, 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.
Deposit of Dividend
123(4)The amount of the dividend, including
interim dividend, shall be deposited in
a scheduled bank in a separate account
within five days from the date of
declaration of such dividend.
Payment of Dividend
123 (5) No dividend shall be paid by a company in respect of any share
therein except to the registered shareholder of such share or to his
order or to his banker and shall not be payable except in cash:
Provided that 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:
Provided further that 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.
Section 127 requires every Company to pay the dividend or post the
warrant in respect thereof has not been posted within thirty days from
the date of declaration to all the shareholders entitled to the payment
of the dividend
Defaults in Deposits
As per Section 123 (6) a Company which fails to comply
with the provisions of section 73 (Prohibition on
acceptance of deposits from public) and Section 74
(Repayment of deposits, etc., accepted before
commencement of this Act) shall not, so long as such
failure continues, declare any dividend on its Equity
shares.
Under the Companies Act, 1956 the restriction was
imposed in case of failure of redeemable preference
shares accepted before the commencement of the
Companies Act, 1956.
What has changed ????
What has Changed:
• In case of interim dividend, where the Company has incurred losses during the
current financial year up to the end of the quarter immediately preceding the date
of declaration of interim dividend, in such a case, the rate at which such interim
dividend shall be declared shall not be at a rate higher than the average dividends
declared by the Company during the immediately preceding 3 financial years.
• Dividend payable in cash can also be paid in any electronic mode to the
shareholder entitled to the payment of such dividend.
• Now a Company which fails to comply with the provisions of section 73
(Prohibition on acceptance of deposits from public) and Section 74 (Repayment of
deposits, etc., accepted before commencement of this Act) shall not, so long as
such failure continues, declare any dividend on its Equity shares. Under the
Companies Act, 1956 the restriction was imposed only in case of failure of
redeemable preference shares accepted before the commencement of the
Companies Act, 1956.
• Instead of transferring a fixed % of profits to reserves before declaring dividend
every year, a Company can at its discretion transfer such % of profit to the reserves
before declaring dividend as it deem necessary and moreover such transfer is not
mandatory.
What has changed ????
• The depreciation calculation methodology has been changed and it shall
only be calculated in accordance with the Schedule II and no other
alternative has been provided.
• In case of inadequacy or absence of profits in any year, a company may
declare dividend out of surplus profits earned by it in previous years and
transferred to reserves , subject to the fulfilment of the conditions as
prescribed in Rule
• Power of the Central Government in public interest to allow Company to
declare dividend for any financial year out of profits of the Company for
that year or any previous financial year or years without providing for
depreciation, has been dispensed with.
SECTION 124 UNPAID DIVIDEND ACCOUNT
1) Where a dividend has not been paid or claimed within 30 days from the date of the
declaration, the company shall, within 7 days thereafter, transfer the total amount of
unpaid or 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.
(2) The company shall, within 90 days of transferring of unpaid or unclaimed dividend amount
to the unpaid dividend account, prepare a statement containing the names, their last
known addresses and the unpaid dividend to be paid to each person and place it on the
website of the company, if any, and also on any other website approved by the Central
Government for this purpose, in such form, manner and other particulars as may be
prescribed.
(3) If any default is made in transferring the unpaid or unclaimed dividend amount or any part
thereof to the Unpaid Dividend Account of the company, the Company shall pay, from the
date of such default, interest @ 12% P.A. on so much of the amount which has not been
transferred to the said account and 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 the amount in the Unpaid Dividend Account of the
company may apply to the company for payment of the money claimed.
Section 124 (Contd....)
(5) Any money transferred to the Unpaid Dividend Account of a company and which remains
unpaid or unclaimed for a period of seven years from the date of such transfer shall be
transferred by the company along with interest accrued, if any, thereon to the Investor
Education & Protection Fund established and the company shall send a statement in the
in Form DIV 5. of the details of such transfer to the authority which administers the said
Fund and that authority shall issue a receipt to the company as evidence of such transfer:
(6) All shares in respect of which unpaid or unclaimed dividend has been transferred under
sub-section (5) shall also be transferred by the company in the name of Investor
Education and Protection Fund along with a statement containing such details as may be
prescribed.
Provided that any claimant of shares transferred above shall be entitled to claim the
transfer of shares from Investor Education and Protection Fund in accordance with such
procedure and on submission of such documents as may be prescribed.
(7) If a company fails to comply with any of the requirements of section 124, the company
shall be punishable with min fine of 5 lakh rupees and a max of 25 lakh rupees and every
officer of the company who is in default shall be punishable with a min fine of 1 lakh
rupees and max of 5 lakh rupees.
What has changed
•
It is specifically clarified that any person claiming to be entitled to any money transferred to
the Unpaid Dividend Account of the company may now apply to the company for payment of
the money claimed, under the Companies Act 1956 this provision is missing.
•
A new provision has been introduced where by when any company transfers any amount to
the unpaid dividend account, then within a period of ninety(90) days of making
such transfer, it is required to prepare a statement containing the names, their last known
addresses and the unpaid dividend to be paid to each person and place it on the website of
the company, if any, and also on any other website approved by the Central Government for
this purpose, in such form, manner and other particulars as may be prescribed.
•
Another new provision has also been inserted which requires that all shares in respect of
which unpaid or unclaimed dividend has been transferred to Investor Education and
Protection Fund, shall be transferred by the company in the name of Investor Education and
Protection Fund along with a statement containing such details as may be prescribed. A good
move but its practical applicability seems difficult and will also create procedural hardships.
•
Any claimant of shares transferred above shall be entitled to claim the transfer of shares from
Investor Education and Protection Fund in accordance with such procedure and on
submission of such documents as may be prescribed.
The punishment in case of failure to transfer the amount in unpaid dividend account has
been increased.
•
SECTION 125 INVESTOR EDUCATION AND PROTECTION FUND.
(1) The Central Government shall establish a Fund to be called the Investor Education and Protection Fund (herein referred
to as the Fund).
(2) There shall be credited to the Fund–
(a) the amount given by the Central Government by way of grants after due appropriation made by Parliament by law
in this behalf for being utilised for the purposes of the Fund;
(b) donations given to the Fund by the Central Government, State Governments, companies or any other institution for
the purposes of the Fund;
(c) the amount in the Unpaid Dividend Account of companies transferred to the Fund under sub-section (5) of section
124;
(d) the amount in the general revenue account of the Central Government which had been transferred to that account
under sub-section (5) of section 205A of the Companies Act, 1956, as it stood immediately before the commencement
of the Companies (Amendment) Act, 1999, and remaining unpaid or unclaimed on the commencement of this Act;
(e) the amount lying in the Investor Education and Protection Fund under section 205C of the Companies Act, 1956;
(f) the interest or other income received out of investments made from the Fund;
(g) the amount received under sub-section (4) of section 38;
(h) the application money received by companies for allotment of any securities and due for refund;
(i) matured deposits with companies other than banking companies;
(j) matured debentures with companies;
(k) interest accrued on the amounts referred to in clauses (h) to (j);
(l) sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for seven or
more years;
(m) redemption amount of preference shares remaining unpaid or unclaimed for seven or more years; and
(n) such other amount as may be prescribed:
Provided that no such amount referred to in clauses (h) to (j) shall form part of the Fund unless such amount has
remained unclaimed and unpaid for a period of seven years from the date it became due for payment.
SECTION 125 (contd...)
(3) The Fund shall be utilised for—
(a) the refund in respect of unclaimed dividends, matured deposits, matured debentures,
the application money due for refund and interest thereon;
(b) promotion of investors’ education, awareness and protection;
(c) distribution of any disgorged amount among eligible and identifiable applicants for shares
or debentures, shareholders, debenture-holders or depositors who have suffered losses due
to wrong actions by any person, in accordance with the orders made by the Court which had
ordered disgorgement;
(d) reimbursement of legal expenses incurred in pursuing class action suits under sections
37 and 245 by members, debenture-holders or depositors as may be sanctioned by
the Tribunal; and
(e) any other purpose incidental thereto, in accordance with such rules as may be prescribed:
Provided that the person whose amounts referred to in clauses (a) to (d) of sub-section (2) of
section 205C transferred to Investor Education and Protection Fund, after the expiry of the
period of seven years as per provisions of the Companies Act, 1956, shall be entitled to get
refund out of the Fund in respect of such claims in accordance with rules made under this
section.
Explanation.—The disgorged amount refers to the amount received through disgorgement or
disposal of securities.
SECTION 125 (contd...)
(4) Any person claiming to be entitled to the amount referred in sub-section (2)
may apply to the authority constituted under sub-section (5) for the payment of
the money claimed.
(5) The Central Government shall constitute, by notification, an authority for
administration of the Fund consisting of a Chairperson and such other members,
not exceeding seven and a chief executive officer, as the Central Government may
appoint.
(6) The manner of administration of the Fund, appointment of chairperson,
members and chief executive officer, holding of meetings of the authority shall be
in accordance with such rules as may be prescribed.
(7) The Central Government may provide to the authority such offices, officers,
employees and other resources in accordance with such rules as may be
prescribed.
SECTION 125 (contd...)
(8) The authority shall administer the Fund and maintain separate accounts and
other relevant records in relation to the Fund in such form as may be prescribed
after consultation with the Comptroller and Auditor-General of India.
(9) It shall be competent for the authority constituted under sub-section (5) to
spend money out of the Fund for carrying out the objects specified in sub-section
(3).
(10) The accounts of the Fund shall be audited by the Comptroller and AuditorGeneral of India at such intervals as may be specified by him and such audited
accounts together with the audit report thereon shall be forwarded annually by
the authority to the Central Government.
(11) The authority shall prepare in such form and at such time for each financial
year as may be prescribed its annual report giving a full account of its activities
during the financial year and forward a copy thereof to the Central Government
and the Central Government shall cause the annual report and the audit report
given by the Comptroller and Auditor-General of India to be laid before each
House of Parliament.
What has changed ????
Now in addition to the amount, which are provided under the Companies Act 1956
to be transferred to the Investor Education and Protection Fund(IEPF), following
additional category of amounts would also be credited to it:
a. the amount given by the Central Government by way of grants after due
appropriation made by Parliament by law in this behalf for being utilized for the
purposes of the Fund;
b. donations given to the Fund by the Central Government, State Governments,
companies or any other institution for the purposes of the Fund;
c. the amount in the general revenue account of the Central Government which
had been transferred to that account under sub-section (5) of section 205A of the
Companies Act, 1956, as it stood immediately before the commencement of the
Companies (Amendment) Act, 1999, and remaining unpaid or unclaimed on the
commencement of this Act;
d. the amount lying in the Investor Education and Protection Fund under section
205C of the Companies Act, 1956;
e. the amount received by way of punishment for impersonation for acquisition,
etc., of securities under Section 38;
What has changed ???
f. sale proceeds of fractional shares arising out of issuance of bonus shares,
merger and amalgamation for seven or more years;
g. redemption amount of preference shares remaining unpaid or unclaimed for
seven or more years
Further the Act clearly provides the purposes for which IEPF may be utilized.
The accounts of the fund shall be audited by the Comptroller and Auditor-General
at such intervals as may be specified by him and such accounts as certified
together with the audit report shall be forwarded to the Central Government
annually.
The Central Government shall cause the annual report and the audit report to be
laid before each house of parliament.
Any person claiming to be entitled to the amount transferred in IEPF can apply to
the authority for the amount he is entitled to, which was not earlier allowed under
the Companies Act 1956.
SECTION 126 : Right to dividend, rights shares and
bonus shares to be held in abeyance pending
registration of transfer of shares.
Where any instrument of transfer of shares has been delivered to any company for
registration and the transfer of such shares has not been registered by the company, it
shall, notwithstanding anything contained in any other provision of this Act,—
(a) transfer the dividend in relation to such shares to the Unpaid Dividend Account
referred to in section 124 unless the company is authorised by the registered
holder of such shares in writing to pay such dividend to the transferee specified in
such instrument of transfer; and
(b) keep in abeyance in relation to such shares, any offer of rights shares under
clause (a) of sub-section (1) of section 62 and any issue of fully paid-up bonus
shares in pursuance of first proviso to sub-section (5) of section 123.
•
No Change
SECTION 127 Punishment for failure to
distribute dividends.
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 thirty 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 imprisonment which may extend to two years and with fine which shall not be less than
one thousand rupees for every day during which such default continues and
the company shall be liable to pay simple interest at the rate of 18% P.A during the period for
which such default continues:
Provided that no offence under this section shall be deemed to have been committed:—
(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.
Sections where rules are yet to be prescribed:
Section 124 Unpaid dividend account:
• The form , manner and particulars, of the persons to whom dividend has not been paid,
which the Company has to disclose on its website (if any) and other website approved by
central government may be prescribed.
• Shares in respect of which unpaid dividend has been transferred to Investor Education and
Protection Fund (IEPF) shall also be transferred in favour of IEPF along with statement
containing such details as may be prescribed.
• Procedures and documents for claiming the transfer of shares from Investor Education
Provident Fund may be prescribed.
Section 125 Investor Education and Protection Fund.
• Additional amount, which shall be credited to the Fund, may be prescribed.
• Rules, in accordance, with which, funds of Investor Education Protection Fund shall be
utilized, may be prescribed.
• Rules, for the manner of administration of the fund, appointment of chairperson, members
and chief executive officer, holding of meetings of the authority for administration of Fund
may be prescribed.
• Rules in accordance with which central government may provide to the administration
authority such offices, officers, employees and other resources may be prescribed.
• Form in accordance with which the authority shall maintain separate accounts and other
relevant records in relation to the fund may be prescribed.
• Form and time, for the annual report of the authority, may be prescribed.
Dividend Distribution Tax
•
As per section 115(O) of Income Tax Act, 1961 any dividend paid by Companies to its
shareholders is subject to Dividend Distribution Tax .
Basic Rate 15%
Surcharge 10%
Cess
- 3%
Effective Rate @ 16.995 %
•
Dividend is tax free in the hands of Shareholders
•
Responsibility is on the corporate to ensure payment of DDT.
•
Time limit
•
Date of Approval -
•
Tax to be paid online and Information to be filed with IT Department along with the Income
Tax Audit Report.
-
14 days from date of approval
Interim Dividend - from BM date
Final Dividend
- from AGM date
Payment of Dividend to Non Resident
Shareholders
Dividends are freely repatriable without any
restrictions (net after Tax deduction at source
or Dividend Distribution Tax, if any, as the case
may be), excepting remittance of dividend
requires permission when investment was
allowed subject to *dividend balancing
condition.
DIVIDEND BALANCING
Where a company is engaged in any of the industries in
the consumer goods sector, specified in Annexure E to
Foreign Exchange Management (Transfer or issue of
security by a person resident outside India)
Regulations, 2000, or in any other activity where the
condition of dividend balancing has been stipulated in
terms of the provisions of Industrial Policy and
Procedures notified by Secretariat for Industrial
Assistance, the cumulative outflow of foreign exchange
on account of payment of dividend over a period of
seven years from the date of commencement of
commercial production to investors outside India shall
not exceed cumulative amount of export earning of the
company during those years.
Remittance of Dividend
• Indian companies intending to remit dividend to their non-resident
shareholders should make an application to an authorised dealer in
Form RCD 1, supported by the particulars of non-resident
shareholding in form RCD 2and other documents prescribed in the
form.
• In case of Interim Dividend application may be made by the
company in India to the authorised dealer by letter (in duplicate)
enclosing only the form RCD 2 and a copy of the Board Resolution
approving the payment of interim dividend.
• Authorised dealers may allow the remittance of dividend
in accordance with the procedure prescribed by RBI.
• In cases where dividend is to be credited to NRO accounts of the
non-resident investors, there is no need to follow the above
procedure.
Question ??????
THANK YOU
CS. P RAJESH KUMAR JAIN
Company Secretary
HIL Limited
Mob: 9704030202
Email: rajjainacs@gmail.com