ANALYSIS OF PROVISIONS RELATING TO DIVIDEND UNDER THE COMPANIES ACT, 2013 BY CS Yash Pareek (ICSI Silver Medalist) www.csyashpareek.in
||Om Shri Ganeshay Namah||
ANALYSIS OF PROVISIONS RELATING TO
DIVIDEND
UNDER THE COMPANIES ACT, 2013
Prepared by
TEAM
YPA
CS
Yash Pareek (ICSI Silver Medalist)
www.csyashpareek.in
Valuable inputs by CS Neha Jain & CS Gajab Maheshwari (Practicing Company Secretaries)
YASH PAREEK &
ASSOCIATES
Company Secretaries
BHOPAL | INDORE |
NAGPUR | AHMEDABAD
Reach us at:
Address: T-3,
3rd Floor, 207, M.P Nagar, Zone-II, Bhopal-462011, M.P
Mobile No: 9111575222
Email id: pcsyashpareek@gmail.com
Website: www.csyashpareek.in
ANALYSIS OF PROVISIONS RELATING TO
DIVIDEND
1. Statutory Provisions of the Law:
· Secretarial Standard on Dividend
(SS-3) (effective from 1st January 2018, However Recommendatory)
· Finance Act 2020 & Section 194 of
the Income-tax Act, 1961
· Section 51 of the Companies Act, 2013
(The Act)
· Section 123 to Section 127 of the Act
· Companies (Declaration and Payment of
Dividend) Rules, 2014 (1st day of April, 2014)
· Section 2 (35) of the Companies Act,
2013
2. Definitions:
2.1Dividend:
· As per general terms, Dividend is a
return on the investment made in the share capital of a company, as distinct
from the return on borrowed capital, which is in the form of interest.
· Pursuant to Section 2 (35) of the Companies
Act, 2013, “Dividend” has been inclusively defined in the Act to the effect
that ‘Dividend includes Interim Dividend’.
· As per Secretarial standards (SS-3), “Dividend”
means a distribution of any sums to Members out of profits and wherever
permitted out of free reserves available for the purpose.
2.2Final Dividend:
“Final
Dividend” means the Dividend recommended by the Board of Directors and declared
by the Members at an Annual General Meeting.
2.3
Interim Dividend:
“Interim
Dividend” means the Dividend declared by the Board of Directors.
2.4 Free Reserves:
“Free
Reserves” means such reserves which, as per the latest audited balance sheet of
a company, are available for distribution as Dividend. However, the following
amount shall not be treated as free reserves:
a. any amount representing unrealised
gains, notional gains or revaluation of assets, whether shown as reserve or
otherwise, or
b. any change in carrying amount of an
asset or of a liability recognized in equity, including surplus in profit and
loss account on measurement of the asset or the liability at fair value.
3. Capitalization of Profits:
Capitalization of profits in the form
of bonus shares is not Dividend.
The allotment of bonus shares does
not entail release of any of the assets of the company. The existing
shareholders, instead of receiving any moneys out of the undistributed profits,
only receive pro rata fresh shares [Sivagnanamal v. Thirumagal Mills Ltd.,
(1948) 18 Comp. Cases 286 AIR 1949 Mad 521]. There is no distribution of
profits among shareholders and hence capitalization of profits in the form of
bonus shares would not be construed as Dividend in terms of the Act.
4. Section 8 companies paying Dividend:
Companies licensed under Section 8 of
the Companies Act, 2013 or corresponding provisions of any previous enactment
thereof are prohibited by their constitution from paying any Dividend to its
Members.
5. Distribution of Profits during Liquidation:
Distribution of any
amount of profits or assets by the liquidator during winding up or liquidation
will not be construed as Dividend.
6. Exemption
from Secretarial Standards:
SS-3 shall not apply
to a company limited by guarantee not having share capital and does not deal
with Dividend, if any, declared by companies under liquidation.
7. Ascertainment
of Amount available for Payment/Distribution as Dividend:
No Dividend
shall be declared or paid by a company for any financial year except
(a) out of the profits of the company for that
year arrived at after providing for depreciation in accordance with the
provisions of Schedule II to the Act, or out of the profits of the company for
any previous financial year or years arrived at after providing for
depreciation in accordance with the provisions of that sub-section and
remaining undistributed, or out of both;
Provided
that in computing profits any amount representing unrealized gains, notional
gains or revaluation of assets and any change in carrying amount of an asset or
of a liability on measurement of the asset or the liability at fair value shall
be excluded; or
(b) out of money
provided by the Central Government or a State Government for the payment of
Dividend by the company in pursuance of a guarantee given by that Government.
[sub-section (1) of Section 123 of the Act]
This is to clarify that the declaration
of Dividend out of profits for previous years which are disclosed under the
head ‘Surplus’ in the Financial Statements will not tantamount to declaration
of Dividend out of reserves and accordingly will not attract the statutory
requirements relating to declaration of Dividend out of reserves.
8. Adjustment
of Previous Year Losses:
Dividend shall not be declared
unless carried over previous losses and depreciation not provided in the
previous year(s) are set off against the profit of the company for the current
year.
9. Transfer
of % of Profits to Reserves
In addition, the First
Proviso to sub-section (1) of Section 123 of the Act provides that 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. Therefore, the transfer of profits
to reserves is left to the discretion of the Board of Directors of the company.
10.Depreciation:
Sub-section (2) of
Section 123 of the Act provides that the depreciation shall be provided in
accordance with the provisions of Schedule II.
11. Restriction on Declaration
of Dividend:
Sub-section (6) of
Section 123 of the Act,
A company shall not
declare Dividend on its equity shares in case of non-compliance of provisions
relating to the acceptance of deposits under the Act, till such time the deposits
accepted have been repaid with interest in accordance with the terms and
conditions of the agreement entered with the depositors.
A company shall also
not declare any Dividend, if it has defaulted in –
(a) Redemption of debentures or payment of interest
thereon or creation of debenture redemption reserve
(b) Redemption of preference shares or creation of capital
redemption reserve,
(c) Payment of Dividend declared in the current or
previous financial year(s), or
(d) Repayment of any term loan to a bank or financial
institution or interest thereon,
till such time the default is
subsisting.
Section 70 of the Act prohibits Buy-Back
of shares if a default is made by the company, in the repayment of deposits,
interest payment thereon, redemption of debentures or preference shares or
payment of Dividend to any shareholder, or repayment of any term loan or
interest payable thereon to any financial institution or banking company.
12. Restriction on Amount
from which dividend should be declared:
Dividend shall not be
declared out of the
· Securities Premium Account or
· the Capital Redemption Reserve or
· Revaluation Reserve or Amalgamation Reserve or
· out of profits on reissue of forfeited shares or
· out of profits earned prior to incorporation of the
company.
No Dividend shall be declared or paid by a
company from its reserves other than free reserves [Third Proviso to
sub-section (1) of Section 123 of the Act.
Further, any specific reserve created out
of the profits of the company on account of any statutory requirement would
become available for distribution as Dividend only after the purpose for which
such reserve was created is achieved e.g, Debenture Redemption Reserve would be
available for distribution as Dividend after the redemption of debentures.
13. Capital Profits:
Certain profits do not
arise in the normal course of business as they are earned out of capital
transactions. These profits are known as capital profits and are not available
for distribution as Dividend. However, profit on sale of fixed assets, though
capital profit, can be utilised for distribution if such profit is actually realised
in cash and such distribution is not contrary to the Memorandum and Articles of
Association of the company.
14.Interim Dividend:
Interim Dividend shall
be declared and paid out of the surplus in the profit & loss account and/or
out of profits of the financial year in which such Dividend is sought to be
declared.
The Board of Directors
of a company may declare Interim Dividend during any financial year or at any
time during the period from closure of financial year till holding of the
Annual General Meeting.
The Board of Directors
of a company may declare Interim Dividend during any financial year or at any
time during the period from closure of financial year till holding of the
Annual General Meeting and such Dividend may be declared out of the surplus in
the profit and loss account or out of profits of the financial year for which
such Interim Dividend is sought to be declared or out of profits generated in
the financial year till the quarter preceding the date of declaration of the
Interim Dividend. [Sub-section (3) of Section 123 of the Act]
The Board should also
ensure that all arrears of preference Dividend are paid before declaring any
Interim Dividend.
15. Frequency of
Dividend Declarations
The declaration of a
Dividend need not be only once a year. It may be at any time the directors
choose, and there may be several declarations in the course of one year.
16.Factors to be Considered while Declaration
of Dividend:
While declaring the
Interim Dividend, the Board shall consider the financial results for the period
for which Interim Dividend is to be declared and should be satisfied that the
financial position of the company justifies and supports the declaration of
such Dividend.
The financial results
shall take into account –
(a) Depreciation for
the full year,
(b) Tax on profits of
the company including deferred tax for full year,
(c) Other anticipated
losses for the financial year,
(d) Dividend that
would be required to be paid at the fixed rate on preference shares.
(e) The losses incurred, if any, during the current
financial year upto the end of the quarter, immediately preceding the date of
declaration of Interim Dividend.
17.
Rate of dividend:
In case of losses incurred, if any, during
the current financial year upto the end of the quarter, immediately preceding
the date of declaration of Interim Dividend, Interim Dividend shall not be
declared at a rate higher than average Dividend declared during the immediately
preceding three financial years.
Proviso to sub-section (3) of Section 123
of the Act provides that in case the company has incurred loss during the
current financial year up to the end of the quarter immediately preceding the
date of declaration of Interim Dividend, such Interim Dividend shall not be
declared at a rate higher than the average Dividends declared by the company
during the immediately preceding three financial years.
18. Equity shares with Differential Rights
In case Interim
Dividend is declared on only one class of equity shares, the Board shall ensure
that the profit as shown in the financial results is adequate to meet the
Dividend that would have to be paid on the other classes of equity shares in
accordance with the terms of issue.
Where a company has
issued equity shares with differential rights as to voting only, no
differentiation shall be made in the declaration of Interim Dividend on such
shares, unless the terms of issue provide otherwise
19. Out of Free Reserves
Rule 3 of the
Companies (Declaration and Payment of Dividend) Rules, 2014
In a year in which the
profits are inadequate or there are no profits, the company may declare
Dividend out of Free Reserves subject to the fulfilment of the following
conditions:
(a). The rate of Dividend declared by the
company shall not exceed the average of the rates at which Dividend was declared
by it in the three financial years immediately preceding the financial year of
declaration of Dividend.
This shall not be
applicable where a company has not declared any Dividend in each of the three
preceding financial years.
(b) Total withdrawal from the accumulated profits
shall not exceed one tenth of the sum of the paid up share capital and free reserves of the company as per the latest
audited financial statements.
(c) The amount so withdrawn shall first be utilised to set
off the losses, if any, incurred in the financial year in which Dividend in
respect of equity shares is proposed to be declared.
(d) The balance of Free Reserves after such withdrawal
shall not fall below 15% of the paid up share capital of the company as per the
latest audited financial statements.
Declaration of Dividend out of
profits for previous years which are disclosed under the head ‘Surplus’ in the
financial statements will not tantamount to declaration of Dividend out of
reserves and accordingly will not attract the requirements prescribed under
this Paragraph.
20.Government Companies:
By virtue of MCA exemption
notification G.S.R.463(E) dated 5th June 2015 the requirement of deposit of
Dividend amount in a separate bank account within five days from the date of
its declaration, as provided under Section 123(4), shall not apply to a
Government Company in which the entire paid up share capital is held by the
Central Government or State Government(s) or jointly by both or by one or more
Government Company.
21. Loss or Inadequacy
of Profits
In the event of a loss
or inadequacy of profits during a financial year, no Interim Dividend shall be
declared/ paid out of Free Reserves. However, Final Dividend may be declared /
paid out of Free Reserves subject to the conditions.
22.Declaration of Dividend
Dividend shall be
declared only on the recommendation of the Board, made at a meeting of the
Board and should be considered at a meeting of the Board and not at a meeting
of a committee of the Board or by way of a Resolution passed by circulation.
Unless the Dividend has been
recommended by the Board, Members in Annual General Meeting cannot on their own
declare any Dividend.
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.
23.Unconditional Dividend:
Dividend shall not be declared
subject to any condition such as the approval of financial institutions/ banks
or foreign collaborators or compliance with any other contractual obligation.
Dividend should not be declared
subject to any condition such as obtaining of approval from financial
institutions/banks etc. [erstwhile Department of Company Affairs (DCA) Circular
No. 2/98 dated 13.04.1998)]
24.Dividend Distribution Policy
The Securities and
Exchange Board of India (SEBI), vide its notification dated 8th July
2016, inserted Regulation 43A to the Listing Regulations making it mandatory for
the top 1000 companies to formulate a “Dividend Distribution Policy”.
The listed entities
other than the top 1000 listed entities based on market capitalisation may
disclose their Dividend Distribution Policies on a voluntary basis in their annual
reports and on their websites.
25.Dividend shall be declared only at an
Annual General Meeting.
Dividend shall be
declared only at an Annual General Meeting of the Company and not at an
Extra-ordinary General Meeting or by way of a postal ballot.
Dividend shall relate
to a financial year and shall be declared by the Members at the Annual General
Meeting of the company after adoption of the financial statements of the
company.
Members may declare a
lower rate of Dividend than the rate recommended by the Board but have no power
to increase the amount or rate of Dividend recommended by the Board. The
company in general meeting may declare Dividends, but no Dividend shall exceed
the amount recommended by the Board. [Regulation 80 of Table F of Schedule I to
the Act].
While Final Dividend
is recommended by the Board and declared by the Members, approval of Members is
not required for declaration of Interim Dividend.
Once an Interim
Dividend is declared by the Board, its noting, approval, confirmation or
ratification in a general meeting is not required. However, the Board’s Report
should mention the amount of Interim Dividend paid by the company.
Before declaring an Interim
Dividend, the Board should carefully consider the interim financial statements
of the company made up to the last possible period of the financial year in
respect of which Interim Dividend is proposed to be declared in line with the
Dividend Policy of the company.
26. Dividend on per Share Basis:
The disclosure of
Dividend on per share basis is applicable to listed companies only; however, as
a good governance practice and to promote uniformity, the Standard requires the
said disclosure to be made by all companies.
27. Dividend from Profits
of Previous Years:
No Dividend shall be declared
on equity shares for previous years in respect of which annual financial
statements have already been adopted at the respective Annual General Meetings
Arrears of Dividend on
cumulative preference shares for previous years may, however, be declared and
paid.
If, after the adoption
of the accounts at the Annual General Meeting, no Dividend is declared for the
period, no Dividend can be declared later with retrospective effect, in respect
of that period.
28. Discount
coupons as Deemed Dividend:
Discount coupons given
by the company with respect to its products or services, to all the
shareholders, should not be treated as Dividend. It is a general practice
adopted by the company for promotion of its products or services.
29.Bonus Shares
A company is
prohibited to issue Bonus shares in lieu of Dividend. Sub-section(3) of Section
63 of the Act provides that the Bonus shares shall not be issued in lieu of
Dividend.
Issue
of Bonus shares does not result in release of assets to the shareholders but the
accumulated profits merely get converted into the share capital of the company.
Hence it is not considered as Dividend.
30. Entitlement to Dividend
Dividend shall be paid
(i)
in respect of
shares held in electronic form, to those Members whose names appear as
beneficial owners in the statement of beneficial ownership furnished by the
Depository(ies) as on the record date fixed by the company for this purpose;
(ii)
in respect of
shares held in physical form, to those Members whose names appear in the
company’s Register of Members after giving effect to all valid share transfers
in physical form lodged with the company before the date of book closure or as
on the record date, as the case may be.
31.Dividend in Kind:
Sub-section (5) of
section 123 of the Act requires that 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.
Second Proviso to
sub-section (5) of Section 123 of the Act provides that 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.
32. Dividend on Preference Shares:
Preference
Shareholders shall be paid Dividend before Dividend is paid to the equity
Shareholders of the company.
Preference shares
carry a preferential right as to Dividend in accordance with the terms of
issue. However, this right is subject to the availability of distributable profits.
Since the Dividend on preference shares is governed by the terms of issue
already approved by the Shareholders, the Board may declare Dividend on such
shares in accordance with the terms of issue.
The right of
Preference Shareholders to receive Dividend is subject to the availability of
distributable profits and it may be noted that this right is not to receipt of
Dividend but to preferential treatment if and when Dividend is declared. Dividend
on preference shares can be paid out of free reserve subject to its declaration.
Even where Dividend is
declared out of free reserves, in case of absence or inadequacy of profits,
Preference Shareholders have priority over equity Shareholders in respect of
payment of Dividend. However, when the Board declares Interim Dividend on
equity shares, it is not necessary to declare Interim Dividend on preference
shares also.
In the case of Interim
Dividend, while Preference Shareholders need not necessarily be paid Dividend
before Interim Dividend is paid to equity Shareholders, the Board should take
into account such sum as would be necessary to pay Dividend to the Preference
Shareholders before consideration of Interim Dividend.
Preference shares may
be cumulative or non-cumulative. Dividend in arrears on cumulative preference
shares can be paid in a later year where there are profits to justify such
payment. In the case of non-cumulative preference shares, if no Dividend is
paid in a year, there is no right to receive the same in future years.
After paying the
Dividend on preference shares and any arrears of Dividend on cumulative
preference shares, residual profit may be utilised for payment of Dividend to
equity Shareholders. However, where participating preference shares have been
issued, the holders thereof also have the right to participate in such residual
profit, subject to the terms of issue of such shares
Participating preference
shares are those shares which are entitled to a fixed preferential Dividend and
are, in addition, entitled to participate in the surplus profits along with
equity Shareholders after Dividend at the said fixed rate has been paid on the
preference shares.
33. Dividend in
Abeyance
The
amount of Dividend in respect of shares for which an instrument of transfer has
been delivered to the company but which have not been registered for a valid
reason shall be transferred to the Unpaid Dividend Account.
34.Payment of Dividend
Dividend shall be
deposited in a separate bank account within five days from the date of
declaration and shall be paid within thirty days of declaration. The
intervening holidays, if any, falling during such period shall be included.
In terms of
sub-section (4) of Section 123 of the Act, the amount of Dividend, including
Interim Dividend, shall be deposited in a scheduled bank in a separate account
within five days from the date of declaration of such Dividend. The Standard
clarifies that the intervening holidays, if any, falling during the said period
of 5 days, shall be included.
The amount deposited
in such bank account shall be utilised only for the payment of Dividend or for
transfer to Unpaid Dividend Account/Investor Education and Protection Fund and
for no other purpose.
The word ‘payment’
implies the act of posting of Dividend warrants or cheques as provided under
the law irrespective of whether the Member concerned has received it or not.
Once a Dividend warrant is posted by the company to the address of the
registered Member, Dividend is deemed to have been paid within the meaning of
Section 206 of the Companies Act, 1956 (corresponding to Section 123(5) of the
Companies Act, 2013). [Hanuman Prasad Gupta v. Hiralal (1970) 40 Comp. Cases
1058 (S.C)].
35. Unpaid Dividend Account:
Unpaid Dividend
Account: In case of any amount remaining as unpaid/ unclaimed in the above separate
bank account, Unpaid Dividend Account needs to be opened within seven days
after the expiry of thirty days from the date of declaration of Dividend.
Any amount which
remains unpaid or unclaimed after the period of thirty days shall be
transferred to the Unpaid Dividend Account to be opened by the company.
The company shall
within a period of ninety days of transferring such amount to ‘Unpaid Dividend
Account’ prepare a statement containing the names, last known addresses and the
amount of Dividend to be paid to each of the Members. Such statement shall be
uploaded on the website of the company, if any, and also on the website
specified by the Central Government for this purpose.
Such statement shall
remain on the website(s) till such time the unpaid or unclaimed Dividend is
transferred to the Investor Education and Protection Fund (the Fund) and be
updated by the company at regular intervals.
36. Rounding off:
The amount of Dividend
payable should be rounded off to the nearest rupee and, for this purpose, where
such amount contains a part of a rupee consisting of paise, then, if such part
is fifty paise or more, it shall be increased to one rupee and if such part is
less than fifty paise, it shall be ignored. [Reference taken from erstwhile
Rule 23 of Companies (Central Government’s) General Rules and Forms, 1956].
37.Remittance of Dividend to Non-Resident
members
Dividend can be
remitted to Non-Resident members provided it is allowed under the terms of the
permission given by the Reserve Bank of India (RBI).
38. Nidhi Companies:
In case of a Nidhi
company, where the Dividend payable to a Member is one hundred rupees or less,
it shall be sufficient compliance if the declaration of Dividend is announced
in the local language in one local newspaper of wide circulation and
announcement of the said declaration is also displayed on the notice board of
the Nidhis for at least three months.
By virtue of MCA
exemption notification G.S.R.465(E) dated 5th June 2015 in case of a Nidhi
Company any Dividend payable in cash may be paid by crediting the same to the
account of the member, if the Dividend is not claimed within 30 days from the
date of declaration of the Dividend.
A Nidhi shall not declare dividend exceeding twenty five per
cent in a financial year ] Substituted by
Nidhi (Amendment) Rules, 2022
Amendment Effective from 19th April, 2022.
39. Validity of Instrument:
Where such cheque or
warrant remains unpaid after the initial period of validity, a fresh instrument
shall be issued in lieu thereof, within fifteen days of the receipt of a valid
request in this regard and such instrument shall also have a validity of three
months from the date of its issue.
40. Proportionate
Payment of Dividend:
Dividend shall be paid
proportionately on the paid-up value of shares.
A company may, if so
authorised by its articles, pay Dividends in proportion to the amount paid-up
on each share. [Section 51 of the Act].
All Dividends shall be
apportioned and paid proportionately to the amounts paid or credited as paid on
the shares during any portion or portions of the period in respect of which the
Dividend is paid; but if any share is issued on terms providing that it shall
rank for Dividend as from a particular date such share shall rank for Dividend
accordingly. [Regulation 83(iii) of Table F of Schedule I to the Act]
41.Adjustment of Dividend:
In terms of the
proviso to Section 127 of the Act, where Dividend has been lawfully adjusted by
the company against any sum due to it from the shareholder, there is no
contravention of the said Section.
Calls in arrears and
any other sum due from a Member in relation to the shares of the company may be
adjusted against Dividend payable to the Member.
42. Contravention:
Section 127 of the Act
provides that 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.
The failure to pay
Dividend within the time specified is treated as an offence and it will not be
open to the Members to waive the provisions of the Section.
In terms of
sub-section (3) of Section124 of the Act, if a company fails to transfer unpaid/
unclaimed Dividend amount to the Unpaid Dividend Account within seven days from
the expiry of thirty days of declaration, the company shall pay, from the date
of such default, interest on so much of the amount as has not been transferred
to the said account at the rate of twelve percent per annum and the interest
accruing on such amount shall ensure to the benefit of the Members in
proportion to the amount of Dividend remaining unpaid to them.
43. IEPF [Investor
Education and Protection Fund]
Any amount in the
Unpaid Dividend Account of the company which remains unpaid or unclaimed for a
period of seven years from the date of transfer of such amount to the Unpaid
Dividend Account, along with interest accrued, if any, shall be transferred to
the Investor Education and Protection Fund.
Any transfer to the
Fund shall be made within thirty days from the expiry of seven years from the
date of transfer of unpaid or unclaimed Dividend to the Unpaid Dividend Account.
Any amount required to
be credited by the company to the Fund, as provided under clauses (a) to (n) of
sub-section (2) of Section 125 of the Act, shall be remitted into the specified
branches of Punjab National Bank, which is the accredited Bank of the Pay and
Accounts Office, Ministry of Corporate Affairs and other authorised banks
engaged by the MCA-21 system, within a period of thirty days of such amounts
becoming due to be credited to the Fund. [Rule 5(1) of the Investor Education
and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules,
2016.]
Sub-section (5) of
Section 124 of the Act provides that the company shall send a statement, in the
prescribed form, of the details of such transfer to the authority which
administers the said Fund and the authority shall issue a receipt to the
company as evidence of such transfer.
The company shall,
along with the copy of the challan, furnish a Statement in Form No. IEPF 1
containing details of such transfer to the
Authority within
thirty days of submission of the challan. [Rule 5 of the Investor Education and
Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]
It shall file with the
IEPF Authority within thirty days of the end of each financial year, a
statement in the prescribed format containing the details of the unclaimed or
unpaid Dividend due to be transferred to the Fund in the next financial year.
Rule 8 of the Investor
Education and Protection Fund Authority (Accounting, Audit, Transfer and
Refund) Rules, 2016 requires a company to furnish:
(1) a statement to the
Authority in Form No. IEPF 6 within thirty days of the end of the financial
year stating therein the amounts due to be transferred to the Fund in the next
financial year.
(2) a statement to the
Authority within thirty days of the closure of its accounts for the financial
year stating therein the reasons for deviation, if any, in the amounts detailed
in sub-rule (1) above and the actual amounts transferred to the Fund.
Rule (6)(3)(a) of the
Investor Education and Protection Fund Authority (Accounting, Audit, Transfer
and Refund) Rules, 2016 requires a company to intimate the concerned
shareholder at least three months before the due date of transfer of shares to
the Investor Education and Protection Fund.
IEPF forms are
detailed as under:
|
Sr. No |
Particulars |
E-form |
|
1. |
Statement of amounts
credited to Investor Education and Protection Fund |
|
|
2. |
Statement of
Amounts credited to Investor Education and Protection Fund Pursuant to Rule
5(4A) |
|
|
3. |
Statement of
unclaimed and unpaid amounts |
|
|
4. |
Statement of
shares and unclaimed or unpaid dividend not transferred to the Investor
Education and Protection Fund |
|
|
5. |
Statement of
shares transferred to the Investor Education and Protection Fund |
|
|
6. |
Statement of amounts
credited to IEPF on account of shares transferred to the fund |
|
44. Transfer of shares to IEPF
Sub-section (6) of
Section 124 of the Act provides that all shares in respect of which dividend
has not been paid or claimed for seven consecutive years or more shall be
transferred by the company in the name of the Investor Education and Protection
Fund.
Further it is
clarified that in case any Dividend is paid or claimed for any year during the
said period of seven consecutive years, the shares shall not be transferred to
the Investor Education and Protection Fund. [Explanation to subsection (6) of
Section 124 of the Act]
45. Revocation of Dividend
Dividend, once
declared, becomes a debt and shall not be revoked.
Dividend when proposed
does not become a debt. The right of Members to claim Dividend arises only
after the Dividend is declared either by the company in an Annual General
Meeting or, in the case of Interim Dividend, by the Directors in a Board
Meeting.
A Dividend once
declared becomes a debt due to the Members and hence cannot be revoked. It
gives rise to an enforceable obligation or creates a debt enforceable
immediately or in the future.
46. Preservation of Records:
Dividend cheques or
warrants returned by the Bank, after payment thereof, and the Dividend
Registers shall be preserved by the company for a period of eight years.
47. Disclosures
Notes to Accounts
forming part of the financial statements of the Company shall disclose the
aggregate amount of Dividend proposed to be distributed to equity and
Preference Shareholders for the financial year and the related amount of
Dividend per share. Arrears of fixed cumulative Dividend on preference shares
shall also be disclosed separately.
The Balance Sheet of
the company shall also disclose under the head ‘Current Liabilities and
Provisions’, the amount lying in the
Unpaid Dividend
Account together with interest accrued thereon, if any.
The amount of Interim
Dividend, if any, paid during the financial year and final Dividend recommended
by the Board of directors shall be disclosed in the Board’s Report.
The Annual Report of
the company shall disclose the total amount lying in the Unpaid Dividend
Account of the company in respect of
the last seven years
and when such unpaid Dividend is due for transfer to the Fund. The amount of
Dividend, if any, transferred by the company to the Investor Education and
Protection Fund during the year shall also be disclosed.
48.Tax Treatment on Dividends:
On or before
31.03.2020:
· Domestic companies was liable to pay DDT (Dividend
Distribution Tax) under Section 115-O of the IT Act.
· Dividend was exempted in the hands of shareholders
under Section 10 (34) of the IT Act.
· Effect rate of dividend 17.65%
Post
01.04.2020
· Also, the whole dividend income is
proposed to be made taxable in the hands of the recipient which was earlier exempted
upto the limit of Rs. 10 Lakh and thereafter at the flat rate of 10% (plus
surcharge and cess) from tax under section10(34) of the IT Act. These
amendments will become applicable from April 01, 2020.
· Finance Act 2020 abolished DDT and
taxed dividend in the hands of shareholders
· Rate of TDS
a. Resident shareholder:
· 10% (who have provided copy of PAN)
· 20% (copy of PAN is not provided)
If aggregate amount of dividend
distributed or paid during the financial year to a shareholder exceeds rs.
5000/- or Shareholders has not submitted form 15g/form 15H.
b. Non-resident shareholder:
· 20% or as per DTAA If those
provisions are more beneficial to said shareholders
· Nil tax to be deducted for Insurance
companies, Mutual funds, Alternate Investment funds, National payment system
trust, Shareholders who have provided us 197 for lower/nil rate of tax
deduction or exemption.
Domestic companies shall not be
liable to pay DDT on dividend distributed to shareholders on or after
01.04.2020
c. Inter corporate dividend:
C.1 Domestic company received dividend
from another domestic company
o
Inter
corporate dividend shall be reduced from total income of company receiving the
dividend if same is further distributed to shareholders one month prior to the
due date of filing of return.
C.2 Dividend received by a domestic company
from foreign company in which such domestic company has atleast 26% equity
shareholding
It is taxable @ 15% plus
surcharge and health and education cess and no deduction for any expenditure
allowed
C.3 Dividend
received by a domestic company from foreign company In which domestic has less
than 26% equity share capital
Normal tax rates and Deduction
for any expense incurred by it for the purpose of earning such dividend income
is allowed.
49.Procedure:
The procedure for declaration of
dividend as follows:
· Issue of notice under section 173 of
the Act, 2013at least 7 days before from the date of board meeting for
declaration of dividend and fixing record date;
· Fixation of record date under
regulation 42 of SEBI (LODR) Regulations, 2015 (“Listing Regulations”)
· Intimation to Stock Exchange(s) w.r.t
the record date at least 7 days (excluding the date of intimation and date of
meeting) before such record date;
· Prior intimation to stock exchange
under regulation 29 of the Listing Regulations, at least 2 working days
(excluding the date of intimation and date of meeting) before the date of board
meeting;
· Convening of board meeting and
declaration of dividend at least 5 days before (excluding the date of
intimation and date of meeting) the record date as per regulation 42 of the
Listing Regulations;
· Intimation to the stock exchange(s),
in case of listed company, within 30 minutes from the date of conclusion of
board meeting as per regulation 30 read with Schedule III of the Listing
Regulations;
· Depositing the dividend amount in
separate bank account within 5 days from the date of board meeting for
declaration of interim dividend as per section 123(4) of the Act, 2013
· Dispatch of dividend amount in the
form of dividend warrants/cheques or in electronic mode within 30 days from the
date of declaration under section 124 of the Act, 2013;
· Transferring the unpaid dividend into
the unpaid dividend account after the expiry of 30 days from the date of
declaration under section 124 of the Act, 2013.
Conclusion:
With the changes made by the Finance
Act, 2020, many aspects are required to be thoroughly checked by the Companies
and Professionals such as Trade-off between lower corporate tax rate and
dividend taxation, Comparison of Limited Liability Partnership (LLP) vs.
company structure, Evaluate timing for dividend distribution in case of
multi-tier structures and alternate means of withdrawal of surplus out of the
company in case of closely held companies or companies managed by relatives.
Happy reading.
Regards,
CS Yash Pareek [ICSI Silver Medalist]
Company
Secretary I Yash Pareek & Associates
{www.csyashpareek.in/Professional}
Entrepreneur
I Manomay Innovations Private Limited
{www.manomay.co.in}
Social
Worker I Rukmani Devi Pareek Charitable Foundation
{www.csyashpareek.in/socialwork}
Contact No.: 9111575222 Website: www.csyashpareek.in
Office at T-3/207,
Zone-II, M.P Nagar, Bhopal-462011, M.P
Disclaimer:
The entire
contents of this document have been prepared based on relevant provisions and
as per the information existing at the time of the preparation. Although care
has been taken to ensure the accuracy, completeness, and reliability of the
information provided, I, CS Yash Pareek assume no responsibility, therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not professional advice and is subject to change without notice.
I assume no responsibility for the consequences of the use of such information.
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