Sign in
Schedule A Demo

Procedure for Declaration & Payment of Dividend

Background 

  • Dividend, inclusive of interim dividend, is an equal distribution of profits of the company amongst its shareholders from the investments made by such shareholders in the share capital of the company. 
  • An interim dividend is declared by the Board of Directors during a financial year or at any time during the period from closure of the financial year till holding of Annual General Meeting* 
  • Final Dividend is recommended by the Board of Directors followed by approval of members at Annual General Meeting of the Company. 

*Approval of member is not required for the declaration of interim dividend. 

Sections/ Rules/Regulation: 

  • Sections 91, 99, 123, 124, 125, 127, 173 of the Companies Act, 2013 
  • Rule 3 of Companies (Declaration and Payment of Dividend) Rules, 2014. 
  • Regulation 9 of the SEBI (PIT) Regulation, 2015 
  • Regulations 12, 29, 30,42, 43, 43A, 44, 46, of SEBI (LODR) Regulations 2015 
  • Rule 10 of the Companies (Management and Administration) Rules, 2014 
  • Rule 5(1), 5(8), 7(2B), 6(5), 6(8), 6A (5), 6A (8), 6 (14), 6A (13) of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016
  • Rule 18(3) of the Investor Education and Protection Fund Authority Rules, 2016
  • Secretarial Standards-3 
  • Secretarial Standards-1 

Pre-requisites & Important Points 

  • Dividend may be declared or paid for any financial year:
    • Out of profit of the company for that year after providing for depreciation or 
    • Out of the profit of the company for any previous financial year or years after providing for depreciation and remaining undistributed or 
    • Out of both of the above or 
    • Out of any money provided by the government (state or Central) in pursuance of the guarantee given by that government.
    • (Section 123(1) of the Companies Act, 2013) 
  • A company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company
  • Dividend can be declared out of free reserves if the company has failed to make any profits after fulfilling the following conditions: (Rule 3 of Companies (Declaration and Payment of Dividend) Rules, 2014.) 
    • The rate of the declared dividend shall not exceed the average of the rates of dividend declared by the company in preceding three financial years. 
    • The amount drawn from the accumulated profits shall not exceed the 1/10th of the total sum of its paid-up share capital and free reserves of the latest audited financial statement. 
    • Before declaring any dividend of equity shares the amount drawn must be first utilized to set off the losses incurring in the financial year in which the dividend is to be declared. 
    • After the amount is drawn, the reserve balance shall not be less than 15% of the paid share capital as per the latest audited financial statement.  
  • Dividend once declared becomes a debt and shall not be revoked [Clause 7.1 of SS-3]
  • Any dividend payable in cash may be paid by cheque or warrant or in any electronic mode to the shareholder entitled to the payment of the dividend
  • A company which fails to comply with the provisions of sections 73 and 74 shall not, so long as such failure continues, declare any dividend on its equity shares.
  • No dividend shall be paid by a company in respect of any share therein except to the registered shareholder of such share or to his order or to his banker and shall not be payable except in cash
  • Nothing herein shall be deemed to prohibit the capitalization of profits or reserves of a company for the purpose of issuing fully paid-up bonus shares or paying up any amount for the time being unpaid on any shares held by the members of the company 
  • Companies which are prohibited under Section 73 and 74 of the Companies Act, 2013 shall be prohibited to declare any dividend till the failure continues. 
  • Companies under Section 8 of the Companies Act are prohibited from declaring any dividend. [SS-3]
  • The listed entity shall declare and disclose the dividend on per share basis only (Regulation 43(1) of LODR 2015) 
  • The listed entity shall not forfeit unclaimed dividends before the claim becomes barred by law and such forfeiture, if effected, shall be annulled in appropriate cases. (Regulation 43(2) of LODR 2015) 
  • The top 1000 listed entities based on market capitalization shall formulate a dividend distribution policy which shall be disclosed [on the website of the listed entity and a web-link shall also be provided in their annual reports] (Regulation 43A of LODR 2015) 
  • Where a company has an Audit Committee, this Committee shall consider the annual financial statements before submission to the Board. Dividend shall be recommended by the Board after consideration and approval of said financial statements. [Clause 2.1 of SS-3]

Procedure:

Meeting of Board 

  • As per Section 173 of the Companies Act, 2013 and Secretarial Standard-1: 
    • A prior intimation to Stock Exchange shall be given by the Listed Company about the Board meeting for recommending dividend at least before 2 working days in advance (excluding the date of intimation and date of meeting). Regulation 29 SEBI (LODR) Regulations 2015] 
    • As per the Code of Conduct of the Listed company, the company shall close its trading window and also give a prior intimation to stock exchange about the same. (Regulation 9 of the SEBI (PIT) Regulation, 2015). 
    • Notice of the Board Meeting shall be issued to all Directors at their registered addresses by post or hand delivery or by electronic means at least 7 days before the date of the board meeting, with provision for shorter notice in case of urgent business. 
    • The notice shall include Agenda, Notes to Agenda, and Draft Resolution. 
    • The Board Meeting shall pass resolutions to: 
      • Consider the recommendation of dividend to its shareholder subject to approval of members at the AGM
      • Decide the book closure period or record date after closing the register of members. 
      • Opening of Bank Account in a Scheduled Bank for making payment of Dividend and for keeping unpaid dividend
      • Approve the draft notice of Annual General Meeting along with the explanatory statement attached with it as per Section 102 of the Companies Act, 2013. 
      • Authorize director or Company secretary to sign and issue notice of Annual General Meeting. 
      • Authorize a director or Company Secretary to sign and file the relevant forms with the registrar of the company. 
  • Listed companies shall disclose the outcome of the Board Meeting to the Stock Exchange within 30 minutes of the outcome of meeting/3 hours as applicable * [Regulation 30 (6)(i) & Point 4 of Para A of Part A of Schedule III of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015] and also on website of the Company within 2 working days from the date of passing of resolution. [Regulation 46 (3) of LODR 2015]. The listed entity may provide the exact link to the webpage of each of the recognized stock exchanges where such information has already been made available by the listed entity.

* Where meeting of B.O.D closes after normal trading hours of that day but more than 3 hours before beginning of normal trading hours of next trading day, listed entity shall disclose decision pertaining to the event or information, within 3 hours from closure of board meeting         

  • Draft Minutes shall be prepared and circulated within 15 days from the conclusion of the Board Meeting.
  • Listed companies shall give notice in advance of at least three working days (excluding the date of intimation and the record date) to stock exchange(s) of record date specifying the purpose of the record date. (Regulation 42(2) of SEBI (LODR), 2015) 
  • The listed entity shall ensure the time gap of at least five working days between two record dates. (Regulation 42(4) of SEBI (LODR), 2015) 

Intimation for Book Closure (Section 91 of the Companies Act, 2013 read with Rule 10 of the Companies (Management and Administration) Rules, 2014) 

  • A company closing the register of members or the register of debenture holders or the register of other security holders shall give at least seven days previous notice by advertisement at least once in a vernacular newspaper in the principal vernacular language of the district and having a wide circulation in the place where the registered office of the company is situated, and  
  • at least once in English language in an English newspaper circulating in that district and having wide circulation in the place where the registered office of the company is situated and  
  • publish the notice on the website as may be notified by the Central Government and on the website, if any, of the Company. 
  • Private companies shall serve the notice at least 7 days before the closure of register of members or debenture holders or other securities to all its members. 

Annual General Meeting 

  As per Sections 96 of the Companies Act, 2013 and Secretarial Standard-2: 

  • Notice of Annual General Meeting shall be given at least 21 clear days prior to the AGM date in writing, by hand, by ordinary post /speed post/registered post, courier/fax/e-mail or any other electronic mode (as per Section 101 of the Companies Act, 2013 and Rule 18 of the Companies (Management & Administration) Rules, 2018). A shorter notice can be issued where the consent is given as specified under Section 101 of the Companies Act, 2013. 
  • The Notice shall be sent to all the directors, members and auditors (Statutory as well as Secretarial) , Debenture Trustees  and all others who are entitled to receive such Notice
  • The notice of AGM shall specify the day, date, time, full address of the venue, and include a statement on the business to be transacted. 
  • The Annual General Meeting shall be held on the appointed day and an ordinary resolution for declaration of dividend shall be passed.  
  • Listed companies shall disclose the outcome of the Annual General Meeting to the Stock Exchange within 12 hours from the conclusion of AGM [Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015] and also on website of the Company within 2 working days from the date of declaration of dividend [Regulation 46 (3) of LODR 2015]. The listed entity may provide the exact link to the webpage of each of the recognized stock exchanges where such information has already been made available by the listed entity. 
  • Voting results shall be submitted to the stock exchange within two working days from the conclusion of the Annual General meeting. (Regulation 44 of the SEBI (LODR) Regulations, 2015). 
  • Minutes of the general meeting shall be prepared, signed and inserted in Minutes Books as prescribed. 

Requirements after obtaining approval of members in AGM for Dividend 

  • A list shall be prepared by the company having the names of the shareholders eligible for receiving the dividend. 
  • The amount of the dividend shall be deposited in a scheduled bank in a separate account within five days from the date of declaration of such dividend. (Section 123(4) of the Companies Act, 2013) 
  • Dividend payable in cash may be paid by cheque or warrant or in any electronic mode to the shareholder entitled to the payment of the dividend [Second proviso to Section 123(5) of Companies Act 2013]. Dividend to be paid within 30 days from its declaration.
  • E facility as approved by RBI to be used for payment of dividend. If  it’s not feasible, then ‘payable-at-par’ warrants or cheques may be issued. Where amount of dividend exceeds Rs. 1500,  ‘payable-at-par’ warrants or cheques shall be sent by speed post. [Regulation 12 of LODR 2015]
  • Opening of an Unpaid Dividend Account 
    • Unclaimed /unpaid dividend to be transferred to a special account called Unpaid Dividend Account within seven days of expiry of 30 days from declaration of dividend [Section 124(1) of Companies Act 2013]
    • The company within 90 days of transfer of unclaimed dividend into the Unpaid Dividend account shall prepare a statement which shall contain the names, last known address and the unpaid dividend that is to be paid and publish the same statement on the website of the company. (Section 124 of the Companies Act, 2013 read with Rule 6 of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016)
  • Amounts in Unpaid Dividend Account which remain unpaid/unclaimed for a period of seven years from the date of such transfer shall be transferred by the company along with interest accrued, if any, to Investor Education and Protection Fund [Section 124(5) of Companies Act 2013 and Rule 5(1) of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]
    • Any amount required to be credited by the companies to the Investor Education and Protection Fund as provided under clause (a) to (n) of sub-section (2) of section 125 of the Act shall be remitted online as prescribed along with a Statement in Form No. IEPF 1 containing details of such transfer to the Authority within a period of thirty days of such amounts becoming due to be credited to the Fund specified account of the IEPF Authority maintained in the Punjab National Bank [and the details thereof shall be furnished to the Authority in Form No. I EPF 7 within thirty days from the date of remittance [Section 124(6) of Companies Act 2013 and Rule 6(14) and 6A(13) of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016] 
    • The company shall, within 60 days of AGM and every year thereafter till completion of the seven years period, identify the unclaimed amounts, as referred in sub-section (2) of section 125 of the Act and prepare a statement containing the names, addresses and the unpaid dividend to be paid to each person and place it on the web-site of the company and any other site approved by the Central Government through IEPF 2 [Section 124(2) of Companies Act 2013 and Rule 5(8) and 7(2B) of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]
    • The company is required to transfer the shares and/or the dividend thereon to IEPF account under section 125. Due to the order of court or Tribunal or any statutory authority, if the company does not transfer the amount/shares then all such details shall be filed by the company/bank within 30 days of end of financial year. [Section 124(6) of Companies Act 2013 and Rule 18(3) of the Investor Education and Protection Fund Authority Rules, 2016]
    • All companies require to transfer the unpaid and unclaimed dividend amount to IEPF account maintained by the Government shall also transfer the respective shares. Details of transferred shares shall be filed in form IEPF-4. [Section 124(6) of Companies Act 2013 and Rule 6(5) and 6(8) 6A(5), 6A(8) of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.]
    • Any dividend/shares remaining unpaid/unclaimed for 7 years has  to be  transferred  to IEPF. Any amount required to be credited to IEPF against surrendering of such shares due to delisting/winding up and dividend received on such shares shall be remitted into the specified account of the IEPF Authority maintained in the Punjab National Bank [and the details thereof shall be furnished to the Authority in Form No. I EPF 7 within thirty days from the date of remittance [Section 124(6) of Companies Act 2013 and Rule 6(14) and 6A(13) of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]

 

Penalties under Companies Act, 2013:

  • U/s 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
  • Section 450 – company and every officer of the company in default or such other person shall be liable to a penalty of Rs. 10,000, and in case of continuing default, with a further penalty of Rs. 1000 for per day of default, subject to a max Rs. 2 lakh in case of a company and Rs. 50000 in case of an officer who is in default or any other person
  • U/s 124(3): *For default in transferring unpaid/unclaimed dividend to Unpaid Dividend Account, interest @12% p.a. to be paid on such amounts and the interest accruing on such amount shall ensure to the benefit of the members of the company in proportion to the amount remaining unpaid to them
    *U/s 124(7): Penalty for non-compliance on company – Rs. 1 lac and in case of continuing failure, Rs. 500 for each day subject to a maximum of ten lakh rupees
    Penalty for non-compliance on officer in default – Rs. 25,000 and in case of continuing failure, Rs. 100 for each day subject to a maximum of two lakh rupees

Penalties under SEBI(LODR) 2015:

Regulation 

Penalties & Punishments 

12 

Listed entity/any other person who contravenes any provision of the regulations shall be liable for one or more of the following penalties/actions as deemed fit by the regulator :  

a) action as per Securities Law,  

b) fine,  

c) suspension of trading,  

d)freezing of promoter/promoter group holding of designated securities, as may be applicable, in coordination with depositories, e) any other action specified by Board 

29 

Rs. 10,000/- per instance of non-compliance per item 

30 

General penalty: 

Listed entity/any other person who contravenes any provision of the regulations shall be liable for one or more of the following penalties/actions as deemed fit by the regulator : a) action as per Securities Law, b) fine, c) suspension of trading, d)freezing of promoter/promoter group holding of designated securities, as may be applicable, in coordination with depositories, e) any other action specified by Board 

42 

Rs. 10,000/- per instance of non-compliance per item 

43A 

Non-disclosure of Dividend Distribution Policy in the Annual Report and on the websites of the entity. – Rs. 25,000/- per instance 

44 

Rs. 10,000/- per instance of non-compliance 

46 

Advisory/warning letter per instance of non-compliance per item₹10,000 per instance for every additional advisory/warning letter exceeding  the four advisory/ warning letters in a financial year 

Note: LODR provisions are applicable to Listed entities only.

Disclaimer: The information contained in this Article is intended solely for personal non-commercial use of the user who accepts full responsibility of its use. The information in the article is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. We make no representation or warranty of any kind, express or implied regarding the accuracy, adequacy, reliability or completeness of any information on our page/article. 

To stay updated Subscribe to our newsletter today

Explore other Legal updates on the 1-Comply and follow us on LinkedIn to stay updated 

Post Views: 65

Stay Connected

X-twitter Linkedin Youtube

Stay Connected

X-twitter Linkedin Youtube

Subscribe Newsletter

Quick Links

Explore Links

Contact info

  • Head Office:
    9, Dwarikapuri, Jamnalal Bajaj Marg,
    C-Scheme, Jaipur
  • Branches: Anand,Vadodara
  • +91 63778 80064
  • hello@1-comply.com
© 2024,  Compezz Solutions Pvt. Ltd. All Rights Reserved.

Schedule A Demo