Dividend

A dividend is a payment made by a company to its shareholders, usually as a

distribution of profits. When a Company earns a profit or surplus, the Company is
able to re-invest the profit in the business (called retained earnings) and pay a
proportion of the profit as a dividend to shareholders

Final dividend
The amount of final dividend is proposed by directors and approved by members in
annual general meeting of the company. The directors propose this amount along
with the approval of annual financial statements. The members may reduce, accept
or reject the dividend as proposed by the director. However, they cannot resolve to
increase the amount as proposed by directors.
Final dividend is paid within thirty days of the date of annual general meeting for
all companies

Interim dividend
The directors of the company may propose and pay interim dividend before end of
the year. This dividend is usually announced with interim results (quarterly or half
yearly accounts) of the company in addition to the final dividend.
The interim dividend must be paid within 30 days of commencement of book
closure for this purpose or if share transfer books were not closed for this purpose
such dividend shall be paid within 30 days of date of directors meeting.
Restrictions on declaration of dividend. Sec 240
o The company in general meeting may declare dividends; but no dividend shall
exceed the amount recommended by the board.

o No dividend shall be declared or paid by a company for any financial year out of
the profits of the company made from
i. the sale or disposal of any immovable property or
ii. assets of a capital nature comprised in the undertaking or any of the undertaking
of the company,
unless the business of the company consists, whether wholly or partly, of selling and
purchasing any such property or assets.

o No dividend shall be declared or paid out of unrealized gain on investment

property credited to profit and loss account.
Dividend to be paid only out of profits. Sec 241
o Any dividend may be paid by a company either in cash or in kind only out of its
profits.
o The payment of dividend in kind shall only be in the form of shares of listed
company held by the distributing company.

Dividend not to be paid except to registered shareholders. Sec 242

o Any dividend declared by a company must be paid to its registered shareholders or
to their order within such period and in such manner as may be specified.

o Any dividend payable in cash may be paid by cheque or warrant or in any electronic
mode to the shareholders entitled to the payment of the dividend, as per their
direction.

o In case of a listed company, any dividend payable in cash shall only be paid through
electronic mode directly into the bank account designated by the entitled
shareholders
Directors not to withhold declared dividend. Sec 243
o When a dividend has been declared, it shall not be lawful for the directors of
the company to withhold or defer its payment and the chief executive of the
company shall be responsible to make the payment in the manner provided.

o Where a dividend has been declared by a company but is not paid within the
period specified, the chief executive of the company shall be punishable with
imprisonment for a term which may extend to two years and with fine which
may extend to five million rupees.

o Chief executive shall from the day of the conviction cease to hold the office of
chief executive of the company and shall not, for a period of five years from
that day, be eligible to be the chief executive or a director of that company or
any other company.
Company can withhold payment of dividend

i. where the dividend could not be paid by reason of the operation of any law;
ii. where a shareholder has given directions to the company regarding the
payment of the dividend and those directions cannot be complied with;
iii. where there is a dispute regarding the right to receive the dividend;
iv. where the dividend has been lawfully adjusted by the company against any sum
due to it from the shareholder; or
v. where, for any other reason, the failure to pay the dividend or to post the
warrant within the period aforesaid was not due to any default on the part of
the company; and
vi. the Commission has permitted the company to withhold or defer payment as
may be ordered by the Commission.
vii. a company may withhold the payment of dividend of a member where the
member has not provided the complete information or documents as specified
by the Commission.

Commission can permit the company to withhold or defer payment of dividend

i. on an application of the company
ii. on the specified form
iii. made within fifteen working days from the date of declaration of the dividend,
and
iv. after providing an opportunity to the shareholder or person who may seem to
be entitled to receive the dividend of making representation against the
proposed action
Unpaid Dividend Sec 244

o In case of Unclaimed or Unpaid dividends, the company shall be transfer the total
amount of dividend which remains unpaid or unclaimed to a separate profit
bearing account to be called the unpaid dividend account.

o Such account must be opened by the company for this purpose in any scheduled
bank.

o The company shall, within a period of ninety days of making any deposit of the
amount to the unpaid dividend account prepare a statement and place it on the
website of the company.
o Such statement will contain
a) the names,
b) the last known addresses,
c) number of shares held,
d) the amount of unpaid dividend to be paid to each shareholder and
e) such other particulars as may be specified

o Any person claiming to be entitled to any money transferred to the unpaid

dividend account of the company may apply to the company for payment of the
money claimed.
o The company shall make payment to the bonafide applicant within a period of
thirty days from the date of submission of claim with the company.
o The amount of profit generated from the account maintained by the company shall
be used by the company for its corporate social responsibility initiatives and
specified purposes.

o Where there is any dispute, embargo or restriction on payment of unclaimed

dividend or where an adjudication is pending before the competent authority or
court, the company shall process the claim after settlement of dispute, removal of
embargo or restriction.

o The company shall make appropriate disclosures in its financial statements and in
respect of unpaid dividend account providing therein details of amounts
transferred into such account, claims received and settled, profits generated from
such account and utilization of such profits during a financial year and such other
information as may be specified.

o If a company fails to comply with any of the requirements, the company and every
officer of the company shall be liable to a penalty of level 3 on the standard scale