DIVIDEND
Meaning- The profit which
falls to share of each individual member of Company.
S. 14 A : Dividend
includes any interim dividend.
The SC in CIT v/s Girdhar Das and Company.
Thus,
dividend is the payment made by a company to its shareholders out of its
distributable profits. It is calculated as a percentage of the nominal value of
their shares, which is fixed for holders of preference shares and fluctuating
for holders of equity or ordinary shares. Distributable profits are the profits
of a company that are legally available for distribution as dividends.
Dividends
are usually payable for a financial year after the final accounts are ready and
the amount of distributable profits is available. Dividend for a financial year
of the company (which is called 'final dividend') are payable only if they are
declared by the company at its annual general meeting on the recommendation of
the directors. But sometimes dividends are also paid by the directors
themselves between two annual general meetings without declaring them at an
annual general meeting (which is called 'interim dividend').
The
size of the dividend payment is determined by the Board of directors of a
company, who decide how much to pay out to shareholders and how much profit to
retain in the business; these amounts may vary from year to year. This is
called 'recommendation of dividend'. There is no specific provision in the Act
to this effect. However, this is implied from the provision in section 217(1)(c),
according to which the Board of directors must state in the Directors' Report
the amount, if any, which it recommends should be paid by way of dividend.
The
dividend recommended by the Board of directors in the Board's Report must be
'declared' at the annual general meeting of the company. This constitutes an
item of ordinary business to be transacted at every annual general meeting.
This does not apply to interim dividend.
The power
regarding appropriation of profits is given to the Board of directors,.
However, they are governed by the provisions of Act. The directors are to
follow table. A or the provisions of Articles and the provisions of the
Companies Act 1950 in the regard. The following are the rules regarding
declaration and payment of dividend:-
(1) Dividend on Paid up Capital. A company may, if so authorized by its Articles, pay dividend
on the paid up value of shares under section 93 of the companies Act.
(2) Provisions of Articles of Association. Rules 85 to 94 of Table A provide that-
(i) A company may declare dividend its general meeting provided
it does not exceed the a mount recommenced by the board of directors.
(ii) the board of directors may from the time pay to members such
interim dividends, as appears to it to be justified by the profits of the company.
(iii) Notice of any dividend should be given to those who are
entitled to receive it.
(iv) The directors my transfer an amount they think p[roper to the
reserve fund which may be utilised for any contingencies.
(v) When a dividend has been declared, it becomes a liability of
the company to the shareholders from the date of its declaration but no
interest can be claimed on it.
3. Dividends
only of Profits.
(a) Dividends can only be declared or paid out of (i) the current
profits of the co., (ii) the past accumulated profits and (iii) moneys provided
by the government for the payment of dividends in pursuance of a guarantee
given by that government. No dividend can be paid out of capital. (Sec. 205
(i)). Director who is responsible for
payment of dividend out of capital shall be personally liable to take good such
amount to the co.
(b) Cos. r not entitled to pay any dividend unless present or
arrears of depreciation have been provided for out of the profits and an amount
of 10 % or reports has been transferred to reserve. However, central govt. may
allow any company to declare or pay dividends out of profits before providing
for any depreciation.
(c) Capital Profits may also be utilised for the declarations of
dividend provided (i) there is nothing in the Article prohibiting the
distribution of dividend out of capital profits; (ii) they have been reallied
in cash: and (iii) they ave been realised in cash and (iii) they remain as
profits after revaluation of all assets and liabilities.
(d) Dividend cannot be paid out of accumulated profits unless
current losses are made good.
(4) Payment
of dividend only in Cash [Sec. 205 (iii)]. Dividends are to be paid in cash only except
in the following circumstances-
(a) by capitalizing the profits by issue of fully paid bonus
shares, if Articles so permit, provided all legal formalities have been
satisfied in respect of issue of bonus shares.
(b) by
paying up any unpaid amount on partly paid up shares.
(5)
Payment of Dividend to Specified
Persons (Sec. 206). Dividend
shall be paid only to those whose names appear on the Register of member’s son
the date of declaration of dividend or to the holders of dividend warrant, if
issued by the company.
(6)
Payment of Dividend within 42
days (Sec. 207) Dividend
must be paid within 42 days of its declarations except in the following
circumstance:-
(i) by
operation of law of insolvency;
(ii) in
compliance of the directions of the shareholders;
(iii) where
right to receive dividend is pending decision;
(iv) where
it is not due to the default of the company.
(v) if
company lawfully adjusts the amount against any debt due form the shareholder.
(7)
Transfer of Unpaid dividend to a
Special Bank Account (Sec. 205 A) According to section 205 A,
newly inserted by the Companies (Amendment) Act 1974, where a company has
declared a dividend but has not posted the dividend warrant in respect therefor
within 42 days to the shareholders entitled to it, such unpaid dividends shall
be transferred to a special account to be opened by the company in that behalf
in any Scheduled Bank to be called Unpaid Dividend Account of ......Co. Ltd/Co.
(Pvt) Ltd.' If the unpaid dividend are not so transferred, the company shall
pay an interest at 12 % p.a. Any unpaid amount of dividend declared before the
commencement of this Amendment Act shall also be transferred to such special
account within 6 months from the date of commencement of the Act.
8. Transfer
Unclaimed Dividend to Central Government. Any
amount transferred to the unpaid dividend account remains unpaid or unclaimed
for 3 years from the date of such transfer shall be transferred to the 'General
Revenue Account' by the company along with a statement giving full particulars
in respect of the sums so transferred and the last known addresses of the
persons entitled to receive it and such other particulars as may be prescribed.
The company is entitled so a receipt for such transfer from the Reserve Bank of
India.
If
a co. fails to comply the above said provisions (given in para 8 and 9 above),
the company and every officer of the company who is in default shall be
punishable with a fine which may extend to Rs. 500 for every day during which
default continues.
Interim Dividend
Dividend
that is paid on shares before the time of declaring the final dividend is
called interim dividend. It is a dividend paid by the directors any time
between two annual general meetings of the company. The word ‘interim’ is not
used as meaning temporary or provisional, but as meaning (happening) in the
meantime, meanwhile, or intervening time, since interim dividend is paid
between two annual general meetings at which final dividend is declared. It is
a dividend paid on the basis of less than a full year's results. The Act does
not contain any provision with regard to interim dividend. The Act vests the
power of recommendation of a final dividend in the Board of Directors and the
power of declaration in the shareholders. However, the articles of association
usually empower the directors to pay an interim dividend.
Regulation
86 of Table-A provides that the Board may from time to time pay to the members
such interim dividends as appear to it to be justified by the profits of the
company. The power given by such an article is vested in the directors and cannot
be exercised by the shareholders of the company and a resolution by the company
in general meeting requiring the directors to declare an interim dividend is
inoperative, unless a concurrent power to declare such a dividend is expressly
conferred on the company in general meeting by the articles.
Before
declaring an interim dividend, directors must satisfy themselves that there are
profits available for distribution by way of dividends. The declaration of interim dividends depends
much more upon estimates and opinions than the declaration of a final dividend,
which is made upon the information contained in a formal balance sheet
The
directors' paramount duty is not to pay dividends out of capital, and
accordingly, after declaring an interim dividend and before payment the
directors can reconsider the matter and properly refuse to pay it for they may
discover that it will, if paid, have to be paid out of capital
An
important difference between final and interim dividends is that once a final
dividend has been declared, it is a debt payable to the shareholders and cannot
be revoked or reduced by any subsequent action of the company; but where
directors have power to pay interim dividends, their decision to do so is not a
declaration of a dividend, and so can be rescinded or varied at any time before
the dividend is paid
Procedure for payment of interim dividend
1.
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It
should be verified that Articles of Association that they authorize the
directors to declare interim dividend, if not, then alter the Articles of
Association.
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2.
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Board Meeting be convened after
giving notice to all the directors [Section 286] to discuss besides others the following
matters.
· To declared interim dividend.
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| 3. |
Stock
Exchange be informed with which shares of the company are listed about the
date of this meeting prior to the board meeting.
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| 4. |
In case the shares of the company are
listed on a Stock Exchange, the following must be done:-
· Inform the said Stock Exchange
within 15 minutes of the board Meeting, by letter or fax of all
dividends declared;
· Give intimation to the Stock
Exchange about the period of record date at least 21 days in advance.
· Issue simultaneously the dividend
warrants which shall be encashable at par at all the branches of your
company’s bankers.
· The dividend warrants should reach
the shareholders on or before the date fixed for payment of dividend.
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| 5. |
In case of joint holders, send the
dividend warrant to the joint shareholders who is first named on the register
of Members of your company or to such person and to such address as the
shareholder or shareholders may in writing direct.
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| 6. |
A separate bank account be opened and
credit the amount of dividend within 5 days from the date of declaration.
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| 7. |
Make the payment or issue dividend
warrants within thirty days from the date of declaration.
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| 8. |
If the company fails to pay the
dividend declared or fails to post the warrant in respect thereof within
thirty days from the date of declaration, every director of the company if he
is knowingly a party to the default will be punishable with simple
imprisonment of 3 years and will also be liable to a fine of Rs. 1,000/- for
every day during which the default continues and the company will be liable
to pay simple interest@18% per annum during the period for which such default
continues. [Section 207]
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| 9. |
The amount
of dividend must be rounded off to the nearest rupee.
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| 10. |
Where instruments of transfer have
been received by the company and the transfer of such shares has not been
registered when the dividend warrants were posted, the amount of dividend
must be kept in the special account called “Unpaid Dividend Account” unless
the company is authorised by the registered holders of those shares in
writing to pay the dividend to the transferees specified in the said
instruments of transfer. [Section 206A]
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| 11. |
Arrange to transfer the total amount
of dividend, which remains unpaid or unclaimed within seventy days from the
date of expiry of thirty days from the date of its declaration to a special
account to be opened by your company in this behalf in any scheduled bank to
be called “Unpaid Dividend Account of Company Ltd.”. [Section 205A(1)]
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| 12. |
Further note that no offence as
aforesaid will be deemed to have been committed by your company’s directors
in the following cases:-
· Where the dividend could not be paid
by reason of the operation of any law;
· Where a shareholder has given
direction to the company regarding the payment of the dividend and those
directions cannot be compiled with;
· Where there is a dispute regarding
the right to receive the dividend;
· Where the dividend has been lawfully
adjusted by the company against any sum due to it from the shareholder; Where
for any other reason the failure to pay the dividend or to post the warrant
within the period of thirty days from the date of declaration was not due to
any default on the part of the company. [Section 207 Proviso]
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Final
Dividend : Procedure for payment
1.
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Convene Board Meeting after giving
notice to all the directors [Section
286] to discuss besides others the following matters.
To
recommend the rate of dividend.
To
decide the dates of Book closure.
To
fix the date, time and place for convening the Annual General Meeting of
shareholders.
Issue
and despatch notices in writing at least 21 clear days before the date of the
General Meeting [Section
171(1)] [Agenda]
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2.
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3.
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4.
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Company may transfer to reserves
more than ten per cent of the current profits if the conditions contained in
Rule 3 of the said Rules are compiled with.
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5.
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If case the shares of the company
are listed on a Stock Exchange, the following must be done:-
Inform
the said Stock Exchange within 15 minutes of the board Meeting, by
letter or fax of all dividends recommended;
The
total turnover, gross profit or loss, provision for depreciation, tax
provision and net profit for the year (with comparison with the previous
year) and the amount appropriated from reserves, capital profits, accumulated
profits of past years or other special source to provide partly or wholly for
the dividend even if this calls for qualification that such information is
provisional or subject to audit. [Clause
20 of the Standard Listing Agreement]
Issue
simultaneously the dividend warrants which shall be encashable at par at all
the branches of your company’s bankers.
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6.
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In case of joint holders, dividend
warrant must be sent to the joint shareholders who is first named on the
register of Members of the company or to such person and to such address as
the shareholder or shareholders specify in writing. [Section
205(5)(b)]
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7.
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Hold and convene the General
Meeting and pass an Ordinary Resolution declaring dividend out of your
company’s reserves.
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8.
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9.
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Open a separate bank account and
credit the amount of dividend within 5 days from the date of declaration.
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10.
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Make the payment or issue dividend
warrants within thirty days from the date of declaration.
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11.
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If the company fails to pay the
dividend declared or fails to post the warrant in respect thereof within
thirty days from the date of declaration, every director of the company if he
is knowingly a party to the default will be punishable with simple
imprisonment of 3 years and will also be liable to a fine of Rs. 1,000/- for
every day during which the default continues and the company will be liable
to pay simple interest@18% per annum during the period for which such default
continues. [Section
207]
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12.
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The amount of dividend must
be rounded off to the nearest rupee.
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13.
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Where instruments of transfer
have been received by the company and the transfer of such shares has not
been registered when the dividend warrants were posted, the amount of
dividend must be kept in the special account called “Unpaid Dividend Account”
unless the company is authorised by the registered holders of those shares in
writing to pay the dividend to the transferees specified in the said
instruments of transfer. [Section
206A]
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14.
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Arrange to transfer the total
amount of dividend, which remains unpaid or unclaimed within seventy days
from the date of expiry of thirty days from the date of its declaration to a
special account to be opened by your company in this behalf in any scheduled
bank to be called “Unpaid Dividend Account of Company Ltd.”. [Section
205A(1)]
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15.
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Further note that no offence as
aforesaid will be deemed to have been committed by your company’s directors
in the following cases:-
Where
the dividend could not be paid by reason of the operation of any law;
Where
a shareholder has given direction to the company regarding the payment of the
dividend and those directions cannot be compiled with;
Where
there is a dispute regarding the right to receive the dividend;
Where
the dividend has been lawfully adjusted by the company against any sum due to
it from the shareholder; Where for any other reason the failure to pay the
dividend or to post the warrant within the period of thirty days from the
date of declaration was not due to any default on the part of the
company. [Section
207 Proviso]
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CHARITABLE CONTRIBUTIONS
Political Contributions :
DIVIDEND
BORROWING POWER OF COMPANY DEBENTURE AND CHARGE
Allotment of shares
LAW OF PROSPECTUS IN COMPANY LAW
Relationship between MOA and AOA.
DOCTRINE OF ULTRA VIRES
CONVERSION OF PRIVATE Company TO PUBLIC Company
KINDS OR TYPES OF COMPANIES
COMPANY LAW:-Characteristics of Company
