Worked Solution
✓ VerifiedAnswer: (B)
Under the Companies Act, 2013, the Board of Directors has the power to declare interim dividend at any time during the financial year or even after the close of the financial year but before the AGM [Section 123(3)]. However, final dividend can only be recommended by the Board — it cannot be declared by the Board unilaterally. The final dividend must be approved (declared) by the shareholders in the Annual General Meeting under Section 123(1). Furthermore, as per the proviso to Section 123(1), the shareholders cannot declare a dividend higher than what the Board has recommended, but they may declare a lower amount. The company secretary's assertion in the case was therefore correct — shareholders cannot increase the dividend beyond the Board's recommendation, but they must approve it. Thus, Option (B) is correct: the BoD can recommend final dividend but approval of the shareholders is mandatory.
Write it like this
1The skeleton
- Hit Section 123(1) vs 123(3) in your first line — examiners award structure marks before they even read your reasoning, so naming both sub-sections upfront signals you know the bifurcation.
- State the interim dividend rule cleanly first — Board can declare interim dividend during the FY or after close of FY but before AGM under S.123(3); this sets the context for what the Board already did legally.
- Then pivot hard on 'recommend vs declare' — your answer lives or dies on this single word distinction: Board can only recommend final dividend, shareholders declare it in the AGM under S.123(1).
- Quote the proviso to S.123(1) explicitly — shareholders cannot declare a dividend exceeding the Board's recommendation; this validates the CS's assertion and is the crux of the scenario.
- Apply to facts in one sentence — tie the 15% Board recommendation and shareholders' demand for 10% extra directly to the proviso, showing you're answering the case, not reciting theory.
- End with a crisp conclusion — 'Thus, the Board cannot declare final dividend; shareholder approval in AGM is mandatory' — one line, no fluff, examiner can tick it immediately.
2Examiner-rewarded phrases
3Common trap
Watch out — most students write 'the Board declared the final dividend' when describing the facts, accidentally contradicting the very rule they're trying to state. The Board *recommends*, never *declares* final dividend; if you slip this word in your answer body, the examiner sees a conceptual error even if your conclusion is right.