Once dividend is declared, the shareholder has a legally enforceable right. If the company sits on the money, Section 127 imposes both punishment on officers and interest in favour of the shareholder.
## Trigger
Dividend has been declared by the company but not paid or warrant not posted within 30 days to entitled shareholders.
## Punishment
Every director of the company, who is knowingly a party to the default:
Imprisonment up to 2 years; AND
Fine not less than ₹1,000 per day during which the default continues.
Company is liable to pay simple interest @ 18% p.a. during the period for which the default continues.
## Exceptions — When No Offence Is Committed
Section 127 does not apply where dividend could not be paid for any of the following reasons:
1. Operation of law — e.g., a court order restrains payment.
2. Shareholder's directions — Shareholder has given directions that cannot be complied with, and the company has communicated this position to the shareholder.
3. Dispute regarding right to receive dividend — there is a genuine dispute about who is entitled.
4. Lawful adjustment — dividend has been lawfully adjusted against any sum due to the company from the shareholder.
5. No default of company — the failure to pay is not due to any default on the part of the company (e.g., postal failure, change of address not intimated).
## Quick Recap Table
Element
Detail
Section
127
Time limit for payment
30 days from declaration
Punishment on directors
Up to 2 years + ₹1,000/day fine
Interest payable by company
18% p.a. simple interest
Exemption
Lawful inability or no fault of company
Worked example
### Example 1
Example 1 — Pure delay. Dividend declared on 1 July 2026. Company fails to dispatch warrants till 15 August 2026 (i.e., 15 days past the 30-day window). Every director knowingly a party is liable: imprisonment up to 2 years and fine ≥ ₹1,000/day; company pays 18% p.a. simple interest for the 15 days.
### Example 2
Example 2 — Court injunction. A court orders the company not to pay dividend to a particular shareholder pending litigation. No offence under Section 127 — covered by 'operation of law'.
### Example 3
Example 3 — Set-off. Shareholder owes calls in arrear. Company lawfully adjusts the dividend against the calls. Section 127 not attracted.
⚠️ Common exam mistakes
Reading the 30 days as running from the AGM date rather than from the date of declaration of dividend.
Forgetting that the 18% interest is simple, not compound.
Treating directors' liability as strict — only directors knowingly a party to the default are punished.
Mistaking the operation-of-law / dispute / set-off exceptions as discretionary — they are statutory defences.
Bare-Act text Section 127 · Companies Act, 2013 · click to expand
Section 127: 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 eighteen per cent. per annum 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.