Chapter 8 — Consolidated Summary of Dividend Provisions

# Chapter 8: Dividend — Consolidated Summary

This is a 30-second revision sheet covering Sections 123 to 127.

## 1. Basic Concept

• Dividend = distribution of divisible profit to members.
• Recommended by the Board (BOD); approved by shareholders at AGM.
• Shareholders cannot increase the rate recommended by BOD — only reduce or accept.

## 2. Interim Dividend (ID)

• Declared by BOD between two AGMs.
• All conditions applicable to final dividend apply to ID also.
• Loss-year cap: If the company has incurred a loss during the current FY up to the end of the quarter immediately preceding declaration, ID shall not exceed the average dividend of the 3 immediately preceding years.

## 3. Sources of Dividend

• Current year's profit; OR
• Past years' profit (free reserves); OR
• Both combined; OR
• Money provided by Central/State Government under a government guarantee.

## 4. Mode of Payment

• Cash including cheque, warrant, or electronic mode. (No payment in kind / bonus shares as dividend.)
• Paid only to registered shareholders (or to their order / bank).
• Dividend amount deposited in a separate scheduled bank account within 5 days of declaration.
• Paid within 30 days of declaration.

## 5. Prohibitions on Payment of Dividend

• Company in default of repayment of deposits under Sections 73 & 74.
• Section 8 companies (not-for-profit) cannot declare dividend.

## 6. Reserve Transfer

• No compulsory transfer to reserves before declaration. (Discretionary at company's choice.)

## 7. The Unpaid Dividend → IEPF Flowchart

```

Dividend Declared

↓ 30 days

Dividend Not Paid / Claimed

↓ 7 days

Deposit unpaid/unclaimed dividend in scheduled bank

(= Unpaid Dividend Account)

→ If not done: 12% p.a. interest from date of default

↓ 90 days

Prepare statement (Name, Last Known Address, Unpaid Amount)

→ Put on company website AND on website notified by Government

↓ After 7 years

Transfer to IEPF (Unpaid/Unclaimed Dividend + Interest)

```

Contravention (s.124):

• Company: ₹5 lakh to ₹25 lakh
• Officer in default: ₹1 lakh to ₹5 lakh

## 8. IEPF — Credits & Applications

Amounts credited to IEPF: amount by Central Government; amount in Unclaimed Dividend Account (UDA) under 1956 & 2013 Acts; amounts under old s.205C; amounts under s.38(4); application money due for refund; matured deposits/debentures; interest accrued on the above; redemption amount of preference shares unpaid for 7 years; other prescribed amounts.

Applications of IEPF:

(a) Refund of unclaimed dividend, matured deposits, matured debentures, application money due for refund.

(b) Promotion of investor education, awareness and protection.

(c) Distribution of disgorged amounts as per court order.

(d) Reimbursement of legal expenses in class action suits.

(e) Other just and equitable purposes.

## 9. IEPF Authority

• Chairperson + up to 7 members + CEO (convenor).
• Accounts audited by C&AG; sent to Central Government; laid before both Houses of Parliament.

## 10. Section 127 — Punishment Snapshot

• Dividend not paid within 30 days →
• Every director knowingly party to default: fine ≥ ₹1,000/day + imprisonment up to 2 years.
• Company liable to pay 18% p.a. simple interest.

## 11. Section 127 — 5 Exemptions (Mnemonic: "LDD-A-O")

1. Law — operation of law (e.g., court order).

2. Directions of shareholder cannot be complied with AND communicated to him.

3. Dispute regarding right to receive dividend.

4. Adjusted lawfully against sum due from shareholder.

5. Other reason where failure was not due to company's default.

## Key Numbers — Crash Sheet