# Punishment for Failure to Distribute Dividend

Statutory Anchor: Section 127 of the Companies Act, 2013.

## 1. The 30-Day Time Limit

Once a dividend is declared, the company must, within 30 days from the date of declaration:

Pay the dividend, OR
Post the dividend warrant to the entitled shareholders.

Important relief: If the company posts the warrant within 30 days, it is not liable even if the shareholder receives it after 30 days. The company's duty is to dispatch, not to ensure receipt.

## 2. Punishment for Failure

If a company fails to pay declared dividends OR fails to post dividend warrants within 30 days:

### (a) On Every Director (who is knowingly a party to the default)

Imprisonment: Up to 2 years
AND
Fine: Minimum ₹1,000 per day during which default continues

### (b) On the Company

Liable to pay Simple Interest @ 18% p.a. for the period of default.

## 3. Five Exemptions — Where No Offence Is Committed

No offence under Section 127 arises in these situations:

#	Exemption	Plain-English Trigger
(a)	Dividend could not be paid by reason of operation of any law	E.g., court injunction, tax authority attachment
(b)	Shareholder gave directions regarding payment AND those directions cannot be complied with, AND this has been communicated to him	E.g., shareholder asked for transfer to a closed account
(c)	Dispute regarding the right to receive the dividend	E.g., succession dispute among legal heirs
(d)	Dividend has been lawfully adjusted by the company against any sum due from the shareholder	E.g., calls in arrears
(e)	Any other reason where failure was not due to any default of the company	Catch-all genuine non-default cases

Critical points on (b): All THREE conditions must coexist — directions given + impossibility to comply + communication to shareholder.

## 4. Special Rule for Nidhi Companies

Where the dividend payable to a member is ₹100 or less, a Nidhi Company need not credit the dividend directly to the shareholder's account or post a warrant.

Instead it must:

1. Publish the dividend declaration in the local language in one local newspaper of wide circulation; AND

2. Display the declaration on the notice board of the Nidhi for at least 3 months.

## 5. Mnemonic for the 5 Exemptions

"LDD-A-O" — Law / Directions (impossible) / Dispute / Adjusted lawfully / Other genuine reasons.

Worked example

### Example 1

Q: XYZ Ltd. declared a dividend on 1 June. It posted dividend warrants on 28 June, but Mr. A received his on 5 July. Has the company defaulted?

A: No. The company posted within 30 days (by 28 June). The statute requires dispatch, not receipt. The company is not liable under Section 127 even though A received it after 30 days.

### Example 2

Q: Mr. P owes ABC Ltd. ₹50,000 as calls in arrears on partly paid shares. ABC declared a dividend of ₹30,000 due to P and adjusted it against the calls. P complains to ROC alleging non-payment. Is this a Section 127 default?

A: No. Exemption (d) applies — the dividend has been lawfully adjusted against sums due from the shareholder. No offence is committed.

### Example 3

Q: A High Court restrained PQR Ltd. from paying any dividend pending disposal of a winding-up petition. The 30 days lapsed. Is the company liable?

A: No. Exemption (a) applies — non-payment is by reason of operation of law (court order). No offence is attracted.

### Example 4

Q: A Nidhi declares a dividend of ₹80 per share to small holders. Must it post warrants individually?

A: No. Because each shareholder's dividend is ≤ ₹100, the Nidhi may instead (i) publish the declaration in a local-language newspaper of wide circulation, AND (ii) display it on its notice board for at least 3 months.

⚠️ Common exam mistakes

Stating the time limit as 'from the date of AGM' — it runs from the date of declaration of dividend.
Saying the company is liable if the shareholder receives the warrant after 30 days — the company only needs to post within 30 days.
Mixing up the company's interest rate — it is 18% p.a. simple interest, not 12% (12% is the unpaid dividend account interest under Section 124).
Imposing imprisonment on ALL directors — only directors knowingly party to default face imprisonment.
Forgetting that fine on director is calculated per day of default (minimum ₹1,000/day), not a one-time amount.
Treating exemption (b) loosely — all three conditions (directions given, non-compliable, AND communicated) must be satisfied.
Applying the Nidhi relief to amounts above ₹100 — the threshold is strict.
Confusing Section 127's 18% p.a. with Section 124's 12% p.a. for failure to transfer to Unpaid Dividend Account.

Bare-Act text Section 127 · The 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.

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Punishment for Failure to Distribute Dividend [Section 127]

Worked example

⚠️ Common exam mistakes