# Punishment for Failure to Distribute Dividend — Section 127

Section 127 is the penal companion to Section 124's payment deadline.

## Trigger

Company fails to:

Pay the declared dividend, OR
Post the dividend warrants

…within 30 days of declaration.

## Consequences

Party	Punishment
Company	Simple interest @ 18% p.a. for the period the default continues (i.e., from end of 30-day window).
Director knowingly party to default	Imprisonment up to 2 years AND fine of ₹ 1,000 per day the default continues.

### Special Carve-out for Nidhi Companies

If the dividend payable to a member is ₹ 100 or less, it is sufficient if the dividend is:

Announced in 1 local language newspaper, and
Displayed on the notice board of the Nidhi for at least 3 months.

## Exemptions from Punishment (5 situations)

The company escapes punishment under Section 127 if non-payment was due to:

1. Operation of law — e.g., court order, garnishee, attachment.

2. Shareholder's own directions that could not be complied with, and the company has communicated this to him.

3. Dispute regarding right to receive the dividend (e.g., succession dispute).

4. Lawful adjustment of dividend against sum due to company from the shareholder (e.g., unpaid call money).

5. Any other reason not due to default of the company.

## Section 124 vs Section 127 — Easy Confusion

Aspect	Section 124	Section 127
Concerns	Procedure: UDA, IEPF, statement on website	Punishment for missing 30-day payment
Interest rate	12% p.a. on default in transfer to UDA	18% p.a. on company for late payment
Imprisonment?	No	Yes — up to 2 years for director

Worked example

### Example 1

Example (Failure of communication): Mr. X instructs the company to pay dividend to his bank account, but the transaction fails due to incorrect details given by him. Critically, the company does not inform X about the failure. The company shall be penalized under Section 127 — although the shareholder's instructions could not be complied, the communication condition of the exemption is not met.

### Example 2

Example (Lawful adjustment): H Ltd. declares dividend of ₹1.2 lakh payable to A, who has defaulted in call money of ₹1 lakh. The company can lawfully adjust the dividend against the call money and pay the balance ₹20,000 to A. No offence under Section 127.

### Example 3

Example (Operation of law): S Ltd. withheld ₹50,000 dividend due to a court order on a family dispute over succession. No offence is committed because the non-payment is due to operation of law.

⚠️ Common exam mistakes

Confusing the 18% (Section 127, paid to shareholders) with the 12% (Section 124, paid for default in UDA transfer).
Forgetting that the exemption based on shareholder's directions also requires the company to have communicated the difficulty back to the shareholder.
Thinking that the company is also imprisoned — imprisonment is on the director knowingly party to the default, not on the company.
Believing the Nidhi carve-out applies to all small dividends — it applies only to Nidhi companies and only when dividend per member is ≤ ₹100.

Bare-Act text Section 127 · Companies Act, 2013 · click to expand

If company fails to pay declared dividend or post dividend warrants within 30 days of declaration: Company shall pay simple interest @18% p.a. for period during which default continue. Director who is knowingly a party to default: Fine of ₹ 1,000 per day for period during which such default continues and Imprisonment upto 2 years. Exemptions: Could not be paid by reason of operation of law; Shareholder has given directions to company for payment of dividend & those directions cannot be complied and same has been communicated to him; Dispute regarding right to receive dividend; Dividend is lawfully adjusted against sum due to company from shareholder; Any other reason not due to default of company.

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Punishment for failure to distribute dividend within 30 days (Section 127)

Worked example

⚠️ Common exam mistakes