Day 1 Master Class by CS S Sudhakar Dividend KMP 20-6-2020 PDF

S.
SUDHAKAR VICE-PRESIDENT (CORPORATE SECRETARIAL) RELIANCE INDUSTRIES

LIMITED
MASTER CLASS ON CORPORATE LAWS

JUNE 27TH 2020
SUDHAKAR SARASWATULA
VICE-PRESIDENT (CORPORATE SECRETARIAL)
RELIANCE INDUSTRIES LIMITED
MOB - 9967651570
S.SUDHAKAR VICE-PRESIDENT (CORPORATE SECRETARIAL) RELIANCE INDUSTRIES LIMITED
My recent LinkedIn quote
“Life will not be the same hereafter. Better to realise this bitter truth as
early as possible and gear up to accept and adopt it”
Disclaimer
Views expressed are of my own and not of the organisation in which I am

employed
This presentation is to the best of my understanding of the subject which

is complex in nature
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COMPANIES ACT, 2013
• Companies Act, 2013 is a forward looking legislation focuses primarily on good governance practices
through disclosure based regime
• It is more ‘self regulated’ than ‘regulated’
• Substantially raised the bar of corporate governance
• An ineptly drafted and hastily implemented Companies Act, 2013 made it an arduous and risky affair to
interpret as well as its implementation
• Circulars / notifications / removal of difficulty orders etc
• Like earlier FERA, Companies Act, 2013 appears to be a draconian Act
• The word ‘fine’ appears 189 times, ‘penalty’ 41 times, ‘prosecution’24 times and ‘imprisonment’ 76 times
in this Act
Learning
The illiterate of 21st century will not be those who can’t read and write,
but those who can’t Learn, Unlearn and Relearn – Alvin Toffler
Key Managerial Personnel

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KEY MANAGERIAL PERSONNEL
• Under section 2(51) KMP in relation to a company means
• The Chief Executive Officer or the Managing Director or the Manager
• The Company Secretary
• The Whole-time Director
• The Chief Financial Officer and
• Such other officer as may be prescribed
• The use of the word “and” denotes that all these positions are to be exclusive and not
alternative
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KEY MANAGERIAL PERSONNEL CONTD …..
• Pursuant to section 203 appointment of KMP is compulsory to the class of companies
notified by the Central Government
• A company which does not fall in such class of companies, but has designated a person by
any of the above designations, by default they may not become a KMP, unless so
designated
• A KMP is an officer in default
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MANAGING DIRECTOR
• Section 2(54) defines the ‘Managing Director’ and the characteristics of the definition are
as under:
• He should be a Director of the company
• He must be entrusted with substantial powers of management of the company
• Such powers must be entrusted by way of a resolution passed by the Board or General
meetings, an agreement or by virtue of the articles of association of the company
• Such powers are to be exercised subject to the superintendence, control and direction of the
Board
• A person who occupies the position without being designated would be deemed to be a MD
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MANAGER
• Section 2(53) defines the ‘Manager’ and the characteristics of the definition are as under:
• He must be an individual
• He must be entrusted with and be in charge of the management of the whole or substantially
the whole of the affairs of the company
• He must be subject to the superintendence, guidance and control of the Board
• He may or may not be a Director of the company
• A person who is not designated as Manager but occupies the position by whatever name
called and exercises such powers would be regarded as a Manager
• He may or may not be an employee of the Company
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FAQS
• Can a factory manager who has substantial powers to run the factory, be considered as a Manager of the company?
• “NO” – manager must be overall in-charge of the affairs of the management of the company’s affairs and not that of a particular
function i.e. factory
• Can a company have more than one MD

• Yes a company can have more then one MD. Both the MDs may be entrusted upon with substantial powers over separate affairs of
the company
• Can a company have Manger and Managing Director simultaneously?

• NO
• Can a company have more the one Manager
• There is no prohibition as such. But when the manager derives powers to have whole or substantially whole of the affairs of the
company, how two people can hold such position
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DIFFERENCE BETWEEN MD AND MANAGER
• Managing director should be necessarily on the Board of the company. Manager may or
may not be on the Board
• Managing director is entrusted with substantial powers of the management of affairs of
the company, whereas a Manager is entrusted with whole or substantially whole of the
affairs of the company
• Manager derives powers by virtue of his statutory position, whereas MD doesn’t derives
his powers by virtue of his position
• Managing director is an employee of the company and a Manager may or may not be so
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CHIEF EXECUTIVE OFFICER (CEO)
• Section 2(18) defines CEO means an officer of a company, who has been designated as
such by it
• He is simplicitor an officer of the company entrusted with some powers of management
• Accordingly he is an officer in default and is liable to punishment under the Act
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CHIEF FINANCIAL OFFICER (CFO)
• Section 2(19) defines a CFO – means a person appointed as the Chief Financial Officer of
the company
• If a company has to mandatorily appoint a KMP, the CFO is to be appointed by the Board
at its meeting
• No qualifications are prescribed for a CFO unlike a Company Secretary
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COMPANY SECRETARY
• Company Secretary means
• a company secretary as defined in Section 2 (1) (c) of Company Secretaries Act, 1980,
• who is appointed by the company to perform the functions of a company secretary under the
Companies Act, 2013
• For the first time the functions and duties of the company secretary were defined by the
Act
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FUNCTIONS OF A COMPANY SECRETARY
• To report to the Board about compliance with the provisions of the Act
• To ensure that the company complies with the applicable secretarial standards
• To discharge such other duties as may be prescribed
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DUTIES OF A COMPANY SECRETARY
• To provide guidance to the board of directors with regard to their duties, responsibilities and
powers
• To convene Board, Committee and shareholder meetings
• To obtain approvals of the Board, Shareholders and Government as required
• To appear before Regulators and various Government authorities
• To assist the Board in the conduct of the affairs of the company
• To assist and advise the Board in ensuring good Corporate Governance
• To discharge such other duties as specified in the Act and assigned by the Board
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Appointment of
Key Managerial Personnel
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APPOINTMENT OF A KMP
• Pursuant to section 203 every company belonging to such class of companies as may be
prescribed shall have the whole-time Key Managerial Personnel
• The words used is that such class of companies “shall have” and not “shall appoint”,
hence the whole-time KMP is not required to be in the employment of the company
• The services of a KMP can be hired or seconded
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APPOINTMENT OF KMP
• Pursuant to Rule 8 of the Companies (Appointment and Remuneration of Managerial
Personnel) Rules, 2014 the following class of companies have to appoint KMP
• Every listed company and
• Every other public company having a paid up share capital of ten crore rupees or more shall
have a whole-time KMP
• Share capital means equity as well as preference capital of a company

• Listed company as per section 2(52) means ‘a company’ which has any of its securities
listed on any recognized stock exchange
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RULE 8A – APPOINTMENT OF A COMPANY SECRETARY
• A company other than a company covered under Rule 8 which has a paid up share capital
of five crore rupees or more shall have a whole-time company secretary
• Vide Companies (Appointment and Remuneration of Managerial Personnel) Amendment
Rules, 2020 dated January 3, 2020, the above was substituted by
• “Every private company which has a paid up share capital of ten crore rupees or more shall
have a whole -time company secretary.".
• This means that any company which has a paid up capital less than rupees ten crore need
not appoint a company secretary
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WHOLE-TIME KMP
• The prescribed class of companies shall appoint the following whole-time KMPs
• Managing Director or CEO or Manager and in their absence a whole-time director
• Company Secretary and
• Chief Financial Officer
• Where a company has Managing Director or CEO or Manager and a whole-time director, the first three
positions only are to be appointed as KMPs and only thereafter the whole-time director
• Means leaving the other three the whole-time director can’t be appointed as KMP
• Only where there is no MD or CEO or Manager but a whole-time director, then such whole-time
director can be appointed as KMP
• Since these are whole-time KMP positions one person can’t hold two positions
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APPOINTMENT OF WHOLE-TIME KMP
• Every whole-time KMP shall be appointed by means of a board resolution containing the
terms of the appointment including the remuneration
• Pursuant to rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014, the
appointment and removal of KMP shall be by means of a resolution passed at the meeting
of the Board
• Hence appointment and removal of KMP can’t be by way of a resolution passed by
circulation
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EXCEPTION TO WHOLE-TIME KMP OF A COMPANY
• A whole-time KMP of a company shall not hold office in more than one company
• except in its subsidiary company at the same time
• However a KMP can be appointed as a Director of a any company, with the permission of
the Board
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APPOINTMENT OF MD OR MANAGER IN MORE THAN
ONE COMPANY
• A company may appoint a person as its MD or Manager of one and of not more than one
other company
• Such appointment can be made or approved by way of a resolution passed at a meeting
of the board
• Such resolution is to be consented by all directors present at the meeting
• Specific notice in this regard shall be given to all the directors then in India
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VACATION OF A KMP
• If the office of any whole-time KMP is vacated, the resulting vacancy shall be filled up
• by the Board at a meeting of the Board
• within a period of six months from the date of such vacancy
S.SUDHAKAR VICE-PRESIDENT (CORPORATE SECRETARIAL) RELIANCE INDUSTRIES
LIMITED
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DIVIDEND
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WHAT IS DIVIDEND
• Dividend is a return on the investment made in the share capital of a company
• In commercial usage it is also referred to as share of profits of a company distributed
amongst its members
• In Companies Act, 2013 Dividend is defined inclusively and includes ‘interim dividend’
• The Act has not made any distinction between Interim and Final dividend
• Capitalisation of profits in the form of bonus shares is not Dividend
• Section 8 companies are prohibited by their constitution from paying any Dividend
DEFINITIONS
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Dividend – SS3
• Dividend means distribution of any sums to
members out of profits and wherever permitted
out of free reserves
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Final & Interim Dividend – SS3

• Dividend recommended by the Board and
declared by members at an AGM is Final dividend
• Dividend declared by the Board at the Board
meeting is Interim dividend
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FREE RESERVES
• Free Reserves means such reserves which as per the latest audited Balance Sheet of a
company are available for distribution as Dividend
• The following amounts shall not be treated as free reserves
• Any amount representing unrealised gains, notional gains or revaluation of assets, whether
shown as reserves or otherwise; or
• Any change in carrying amount of an asset or of a liability recognised in equally including
surplus in P& L account on measurement of the asset or the liability at fair value
SOURCES FOR PAYMENT
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PAYMENT OF DIVIDEND FROM PROFITS
• Dividend shall be paid out of the profits of the financial year for which such Dividend is
sought to be declared and / or
• Out of profits for any previous financial year(s) which remains undistributed after
providing for depreciation in accordance with the provisions of the Act
• Dividend may also be declared out of money provided by the Central Government or a
State Government in pursuance of a guarantee given by such Government for this
purpose
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WHAT IS A PROFIT
• The word ‘profit’ is not defined under the Companies Act, 2013
• Profit is nothing but ‘surplus’ i.e. credit balance in the P&L account
• In accounting terms profit is the excess of the sales revenue over the cost of providing the
goods or services and expenses of the period
• Distributable profits means the profits that are legally available for distribution as dividends
• Dividend is not to be paid out of capital and that amounts to breach of trust on the part of
directors
• The member who receives a dividend knowing that it is being paid out of capital is liable to
make good the amount
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COMPUTATION OF PROFITS
• While computing profits the following shall be excluded
• any amount representing unrealised gains, notional gains or revaluation of assets and any
changes in carrying amount of an asset or of a liability on measurement of the asset or liability
at fair values (new proviso to sub-sec 1) (amendment under Companies (Amendment) Act,
2017)
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CARRY FORWARD LOSSES
• Dividend shall not be declared unless carry forward losses, if any, shall be set off against
the profit, before declaration of Dividend
• Before declaration of Dividend the company may consider transferring such percentage
of profits to the Free Reserves
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WHEN DIVIDEND CAN’T BE DECLARED
• A company shall not declare Dividend on its equity shares in case of non-compliance of
provisions relating to repayment of Deposits so long as such failure continues
• This means that the company can’t declare dividend unless it makes good the default by
repayment of such deposits
• If any extended time was granted by the Tribunal / Court for repayment of liabilities no
dividend can be declared during the extended time
• Once the deposits have been repaid with interest in accordance with terms and
conditions, then the Dividend can be declared
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NOT TO DECLARE DIVIDEND
• A company shall not declare ‘any dividend’ if it has defaulted in the following, till such
time the default is subsisting
• Redemption of debentures or payment of interest there on or creation of DRR
• Redemption of preference shares or creation of CRR
• Payment of dividend declared in the current or previous financial years; or
• Repayment of term loan to a bank or FI or interest thereon
• The term ‘any dividend’ used refers to declaration both on Equity and Preference shares
• In case preference shares are redeemed from fresh issue creation of CRR is not required
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FROM WHERE DIVIDEND CAN’T BE DECLARED
• Dividend shall not be declared out of
• Securities premium account; or
• The Capital Redemption Reserve account; or
• Revaluation Reserve account; or
• Amalgamation Reserve account; or
• Out of profits on re-issue of forfeited shares; or
• Out of profits earned prior to incorporation of the company
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DISTRIBUTION OF DIVIDEND OUT OF RESERVES
• Dividend shall not be declared from profits out of capital transactions, if not realized in
cash
• If such profits are realized in cash i.e. on sale of fixed assets such profits may be used for
declaration of dividend
• DRR would be available for distribution once the debentures are redeemed
• Once a fixed asset is disposed off, the revaluation reserve created in respect of such
asset would have to be transferred to General Reserve and thereafter the same is
available for distribution as dividend
INTERIM DIVIDEND
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INTERIM DIVIDEND
• ‘Interim dividend’ is a dividend declared and paid by the directors at any time between
two AGMs
• The word ‘interim’ doesn’t mean temporary or provisional
• Act doesn’t contain any provision in regard to declaration of interim dividend
• The Articles of Association of the company should authorize to declare such interim
dividend
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DECLARATION OF INTERIM DIVIDEND
• Board may declare interim dividend (new sub-section 3)
• during any financial year or
• at any time during the period from closure of the financial year till holding AGM
• Interim dividend may be declared
• out of the surplus in the P&L account or
• out of profits of the financial year for which such interim dividend is sought to be declared or
• out of profits generated in the financial year till the quarter preceding the date of declaration of the
interim dividend
• This means Board can declare interim dividend even after the closure of a financial year and
from the profits of the next financial year
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RESTRICTION ON INTERIM DIVIDEND
• While declaring interim dividend, board should satisfy itself that the financial position of
the company justifies and supports such declaration
• The board may declare interim dividend more than once in a financial year
• In case the company 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 immediately preceding three financial years
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PRECAUTIONS TO DECLARE INTERIM DIVIDEND
• The financial results shall take into account
• Depreciation for the full year
• Tax on profits of the company, including deferred tax for full year
• Other anticipated losses for the financial year
• Dividend that would be paid at the fixed rate on preference shares
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EQUITY SHARES WITH DIFFERENTIAL RIGHTS
• In case equity shares were issued with differential rights as to dividend, interim dividend
may be declared on all or any one or more of the classes of such shares
• In case interim is declared on only one class of shares, the Board shall ensure that the
profit shall be adequate to meet the dividend that would be paid on the other class of
shares
• For example while declaring interim dividend on equity shares, Board should ensure adequate
profits to be able to pay dividend on preference shares
• Where equity shares were issued with differential rights as to voting only, no
differentiation shall be made in the declaration of interim dividend
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WHETHER INTERIM DIVIDEND TO BE CONFIRMED
• Interim dividend can be declared by the Directors between two AGMs provided the
Articles of the company so authorizes
• Act no where provides that unlike in case of final divined the interim dividend must be
approved or confirmed or ratified by the members in general meeting
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WHETHER DIVIDEND DECLARED IS A DEBT -
• A declaration of dividend by a company in general meeting is a debt
• Under the Companies Act, 2013 Dividend includes interim dividend, hence interim
dividend once declared by the Board of Directors is a debt
DIVIDEND OUT OF FREE RESERVES
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DECLARATION OF DIVIDEND OUT OF FREE RESERVES
• In a year in which the profits are inadequate or there were no profits , the company may
declare dividend out of free reserves, subject to fulfilment of the following conditions
• Rate of dividend shall not exceed the average of the rates at which dividend was declared
in the three financial years immediately preceding
• For example the rate of dividend declared during the previous three financial years is say 5%,
6% and 10%. The average rate of dividend is 7%. Hence the rate of dividend can’t be more than
7%
• In case no dividend was declared in each of the three preceding financial years, this shall
not be applicable
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• Total withdrawal from the accumulated profits shall not exceed one tenth of the paid up
share capital and free reserves of the company
• For example the paid up capital of the company is Rs 10 crore and the free reserves of the
company is say Rs 90 crore. So the withdrawal for payment of dividend can’t be more than Rs 10
crore
• The amount so withdrawn shall first be utilised to set off the losses, if any incurred in the
financial year
• In the above example if the company has incurred loss of Rs 5 crore during the financial year,
out of the withdrawn amount of Rs 10 crore, the loss of Rs 5 crore to be adjusted first and
then from the remaining amount dividend is to be declared
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• Balance reserves after such withdrawal shall not fall below 15% of the paid up share capital
• for example the available reserves are Rs 23 crore and the paid up capital of the company is say Rs
50 crore. 15% of paid up capital of Rs 50 crore is Rs 7.50 crore. Hence after withdrawal the
amount of reserves shall not fall below Rs 15.50 crore
• The above conditions shall not be applicable to a Government company

• In the event of a loss Interim dividend shall not be declared out of free reserves
• However final dividend can be declared subject to the above conditions
• If dividend is declared out of the profits of previous years that will not tantamount to
deliration of dividend out of reserves
DECLARATION OF DIVIDEND
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DECLARATION OF DIVIDEND
• Dividend shall be declared only at the Annual General Meeting
• Dividend shall not be declared at an EGM or by way of postal ballot
• Dividend shall be declared by the Members only on the recommendation of the Board
• Being an important decision dividend shall be recommended only at a meeting of the
Board
• Board shall consider annual financial statements, duly recommended by the audit
committee
• Dividend shall not be recommended subject to any conditions
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DECLARATION OF DIVIDEND CONTD ….
• Members while declaring the dividend recommended by the Board, may declare a lower rate
or not declare any dividend, but can’t increase such dividend
• Dividend shall be disclosed on per share basis
• No dividend shall be declared for previous financial years on equity shares in respect of which
the financial statements were already adopted
• Arrears of dividend on cumulative preference shares may however be declared and paid
• Distribution of discount coupons shall not be treated as deemed dividend
• A company is prohibited to issue Bonus shares in lieu of dividend
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DECLARATION OF INTERIM DIVIDEND
• Interim dividend shall be declared by the Board and Members approval is not required
• Interim dividend shall be declared by the Board at a meeting only
• Interim dividend shall not be declared out of the free reserves of the company
• In case the company has issued preference shares, the board should ensure sufficient funds
are available to make dividend payment to preference shareholders
• Interim dividend once declared by the Board its approval, noting, confirmation or ratification
in a general meeting is not required
• In the Board’s report the details of interim dividend should be mentioned
58
DIVIDEND DISTRIBUTION POLICY
• Under Regulation 43 A of SEBI LODR top 500 listed companies shall formulate a
‘Dividend Distribution Policy’
• The recommendation or declaration shall be in line with the Dividend Distribution Policy
• Such policy shall be disclosed in the annual report and web site of the company
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PARAMETERS OF THE POLICY
• Dividend Distribution Policy shall include the following parameters
• The circumstances under which the shareholders may or may not expect dividend
• The financial parameters that shall be considered while declaration of dividend
• Internal and external factors that shall be considered for declaration of dividend
• Policy as to how the retained earnings shall be utilized and
• Parameters that shall be adopted with regard to various classes of shares
ENTITLEMENT TO DIVIDEND
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ENTITLEMENT TO DIVIDEND
• Dividend shall be paid only to the
• registered holders of the shares entitled to dividend; or
• to their order; or
• to their Bankers
• Dividend shall be paid to those members whose names appears in Benpos in case of
electronic holding and whose names appears in ROM in case of physical holding, as on
the record date
• Effect to be given to all valid share transfers lodged before the record date / book
closure
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DIVIDEND TO PREFERENCE SHAREHOLDERS
• Preference shareholders shall be paid dividend before dividend is paid to the equity
shareholders
• Preference shares carry a preferential right over the Equity shares, in accordance with the
terms of the issue
• This right is subject to availability of distributable profits
• This preferential treatment is if and when the dividend is declared
• Dividend on preference shares can be paid out of free reserves subject to its declaration
• In case where dividend was declared from free reserves, preference shareholders have
priority over equity shareholders
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DIVIDEND TO PREFERENCE SHAREHOLDERS CONTD..
• Since the rate of dividend on the preference shares was already approved by the
shareholders as a part of the terms of issue, the Board may declare such dividend on
preference shares
• Before declaring interim dividend, though preference shareholders need not be paid
dividend, Board should ensure the funds availability to pay dividend to preference
shareholders as per terms decided
• In case there are two or more class of preference shares, the holders of the class which
has priority are entitled to their preference dividend over the other class. If all are at
pari-passu then they should get simultaneously
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ARREARS OF DIVIDEND ON PREFERENCE SHARES
• Arrears of cumulative preference shares may be paid in later years, wherein profits are available
• In case of non-cumulative preference shares, if no dividend is paid in a year, they have no right to received
such dividend in future years
• After paying the dividend and arrears of dividend, if any, to cumulative preference shareholders, the
residual profit may be utilised for payment of dividend to equity shareholders
• In case of participating preference shares are issued, they too will be entitled to receive dividend from
such residual profit as per terms of issue
• Where shares with differential rights as to dividend are issued, the terms of issue shall govern the rights
of each such class of holders as to receipt of dividend
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DIVIDEND TO PREFERENCE SHAREHOLDERS
• In case of cumulative preference shares, if dividend is in arrears, despite the fact that the
preference shares are redeemed the dividend is still to be paid unless waived by the
preference shareholders
• Preference shares may be participating and non-participating
• Participating preference shares means those shares which are entitled to a fixed
preferential dividend and in addition entitled to participate in the surplus profits along
with equity shareholders
DIVIDEND IN ABEYANCE
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DIVIDEND IN ABEYANCE
• In case of shares which have not been transferred, as the ownership is in dispute; or
• Where specific prohibitory orders have been passed by a court or statutory authority,
dividend should be kept in abeyance and be transferred to the unpaid dividend account
as and when it becomes due
PAYMENT OF DIVIDEND
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PAYMENT OF DIVIDEND
• Dividend shall be deposited in a separate bank account within five days from the date of
declaration and shall be paid within thirty days of declaration
• The intervening holidays falling during such five days shall be included
• Any amount which remains unpaid or unclaimed after the period of thirty days shall be
transferred to the unpaid dividend account to be opened by the company
• The amount deposited in the bank shall be utilised for payment of dividend or to transfer to
IEPF and for no other purpose
• Deposit in bank account within five days shall not be applicable to Government companies,
wherein entire paid up capital is held by Central or one or more State Governments
70
PAYMENT OF DIVIDEND
• Taxes on distribution of dividend shall be paid as per the Tax provisions
• Dividend shall be paid in cash and not in kind
• Dividend shall be paid through electronic mode and where not possible through physical warrant
• Unless the articles provide otherwise, dividend shall be paid in proportion to the amount paid-up on the
shares and for the proportion of the period of the financial year
• Calls in arrears and any other sum due from a member in relation to shares may be adjusted against the
dividend
• In case of unlisted companies, if the articles so provide, any other sum due may also be adjusted against
dividend
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ADJUSTMENT OF DIVIDEND AMOUNT
• Calls in arrear may be adjusted against dividend payable to any member
• This power may be exercised irrespective of whether or not the articles contains such
provision
• A listed company may adjust the amount of dividend against the calls in arrears or any
other sums due from member in the capacity of member
• In case of other companies any other sums due from member in any other capacity may
also be adjusted, if the articles so provide
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PAYMENT OF DIVIDEND DURING COVID -19 SITUATION
• Dividend shall be paid through electronic mode

• This means those shareholders who have given their ECS mandates the dividend once
declared will be credited to their respective bank accounts
• If the ECS mandates are not given by the shareholders the dividend shall be paid by
physical warrants or cheques
• Upon the restoration of the normalcy such physical instruments shall be dispatched
UNPAID DIVIDEND - IEPF
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UNPAID DIVIDEND ACCOUNT
• Once declared dividend shall be distributed within thirty days
• Within five days the dividend amount shall be transferred to a separate bank account
• Such amount shall be utilized only for payment of dividend or to transfer the unpaid dividend
amount to IEPF account
• Amount of dividend which remains unpaid or unclaimed after thirty days from the date of its
declaration shall be transferred to a special bank account titled as “unpaid dividend account”
• Such transfer shall be made within seven days from the date of expiry of the thirty days
period
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UNPAID DIVIDEND
• Within a period of 90 days of transferring such amount to unpaid dividend account, a
statement containing the names, addresses and amount of dividend unpaid shall be
uploaded in form IEPF-2 on the website of the company and also on the website
specified by the Central Government
• Such statement shall remain on the website till the time the unpaid dividend is
transferred to IEPF account
IEPF
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INVESTOR EDUCATION & PROTECTION FUND (IEPF)
• This fund is to be established by the Central Government

• The following amounts shall be credited to such fund
• Grants / donations from Central / State Governments
• Dividend unclaimed / unpaid for a period of consecutive seven years
• Amount lying in IEPF established under the old act
• Amount received through disgorgement or disposal of securities in connection with
personification for acquisition of securities under section 38
78
TRANSFER OF UNPAID DIVIDEND TO IEPF
• Once the amount is due to transfer to IEPF, the same should be transferred within thirty
days to the IEPF authority
• The company should furnish a statement in form IEPF-1, containing details of such
transfer, together with a copy of the challan under which the amount was deposited
• Within 90 days of the AGM and every year thereafter till the completion of seven year
period identify the unclaimed amounts and upload on its own website and of the
authority in form IEPF-2
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TRANSFER OF SHARES TO IEPF
• Where the dividend was unpaid or unclaimed for a consecutive period of seven years
apart from the dividend the corresponding shares are also to be transferred to the
authority’s demat account
• In case during the seven years even one warrant is encashed then no shares need to be
transferred to the authority
• In case the seven year period is completed or being completed during the period
September 7, 2017 to October 31, 2017, the due date for transfer of such shares shall
deemed to be October 31, 2017
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INTIMATION TO THE SHAREHOLDER
• Three months before the due date to transfer the company should inform the shareholder at
the last known address
• A notice is to be published in English and vernacular news papers informing the shareholders
that such shareholder’s names are available on the website of the company
• In the following cases the shares shall not be transferred to IEPF authority
• there is a specific order of Court or Tribunal or a statutory authority restraining the transfer
• such shares were pledged or hypothecated under the provisions of the depositories act.
• In such cases the company shall furnish such details in form IEPF-3 within thirty days from the
end of the financial year
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CREDIT OF SHARES TO IEPF AUTHORITY
• Once the shares corresponding to unpaid / unclaimed dividend for seven consecutive years is
transferred to IEPF authority demat account, the company shall send a statement in Form no
IEPF-4
• The company shall maintain the details of such transfers
• The voting rights on such shares is frozen until the rightful owner claim the shares
• The shares which have been transferred to IEPF authority shall not excluded while calculating
the total voting rights
• All corporate benefits such as bonus shares, split, consolidation, fraction etc shall be credited
to the demat account of IEPF authority
82
CREDIT OF SHARES TO IEPF AUTHORITY
• Shares in the demat account of IEPF authority shall be used only to transfer back to the
claimant
• In case the company is getting delisted the authority shall surrender the shares and the
proceeds realized shall be credited to the Fund
83
MISCELLANEOUS PROVISIONS
• Dividend, once declared becomes a debt and shall not be revoked
• Dividend warrants and register shall be preserved for a period of eight financial years
• Thereafter the same may be destroyed with the approval of the Board
• Notes on accounts forming part of financial statements, shall disclose the aggregated
amount of dividend proposed on equity and preference shares
• Arrears on preference shares shall be disclosed separately
84
MISCELLANEOUS PROVISIONS
• Under the head ‘current liabilities and provisions’ the amount lying in unpaid dividend
account, together with interest accrued thereon shall be disclosed
• Interim and final dividends shall also be disclosed in the Board’s Report
• Annual report shall disclose the total amount lying in the unpaid dividend account in
respect of the last seven years and such unpaid dividend due for transfer
• Amount transferred to IEPF account shall also be disclosed in the board’s Report
85
PENAL PROVISIONS
• Once a dividend is declared and is not paid as per the provisions of the Act,
• 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 eighteen per cent per annum
during the period for which such default continues
86
NO OFFENCE DEEMED TO HAVE BEEN COMMITTED
• Under the following circumstances where in the dividend has not been paid, no offence
deemed to have been committed
• Dividend could not be paid by operation of law
• Directions given by the shareholders couldn’t be complied with and the same was intimated
to him
• In case of dispute in regard to right to receive the dividend
• Dividend was lawfully adjusted by the company
• Failure to pay dividend or to post the warrant was not due to the any default on the part of
the company
ADDITIONAL COMPLAICNES FOR
LISTED COMPANIES
88
ADDITIONAL COMPANIES FOR LISTED COMPANIES
• The equity shares allotted by the company shall rank pari passu with the existing shares
for the purpose of payment of dividend as on the Record date
• Company shall not issue shares in any manner which may confer on any person superior
rights as to voting or dividend on equity shares that are already listed
• Prior intimation to stock exchanges about the board meeting at least two working days
in advance
• Intimate the record date to the stock exchanges at least seven days in advance
• Intimation of record date at least five working days before the record date is fixed
89
ADDITIONAL COMPANIES FOR LISTED COMPANIES
• Company shall disclose the outcome of the board meeting to the stock exchanges within
thirty minutes of closure of the meeting
• Shall also intimate the date on which such dividend shall be paid or dividend warrant shall
be despatched in the annual report
• Company shall declare and disclose dividend on per share basis only
• Top 500 listed companies shall formulate a ‘Dividend Distribution Policy’
• The same shall be disclosed in the annual reports of the company and to be uploaded on
their websites
90
PARAMETERS OF DIVIDEND DISTRIBUTION POLICY
• The dividend distribution policy shall include the following parameters:
• the circumstances under which the shareholders of the listed entities may or may not expect
dividend;
• the financial parameters that shall be considered while declaring dividend;
• internal and external factors that shall be considered for declaration of dividend;
• policy as to how the retained earnings shall be utilized; and
• parameters that shall be adopted with regard to various classes of shares:
• Provided that if the listed entity proposes to declare dividend on the basis of parameters in
addition to the above or proposes to change such additional parameters it shall disclose such
changes along with the rationale for the same in its annual report and on its website.
91
THANK YOU

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S.

SUDHAKAR VICE-PRESIDENT (CORPORATE SECRETARIAL) RELIANCE INDUSTRIES

MASTER CLASS ON CORPORATE LAWS

My recent LinkedIn quote

Views expressed are of my own and not of the organisation in which I am

This presentation is to the best of my understanding of the subject which

Key Managerial Personnel

• Can a company have more than one MD

• Can a company have Manger and Managing Director simultaneously?

• Share capital means equity as well as preference capital of a company

Final & Interim Dividend – SS3

• The above conditions shall not be applicable to a Government company

• Dividend shall be paid through electronic mode

• This fund is to be established by the Central Government

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