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Companies Act and Payment of Dividend
In fact, the declaration and payment of dividend is an internal matter of the company and is governed by tis Articles.


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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 a 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 t 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 company, (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 company.

(b) companies are 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 government 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 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;
in compliance of the directions of the shareholders;
where right to receive dividend is pending decision;
where it is not due to the default of the company.
if company lawfully adjusts the amount against any debt due form the shareholder.

(7) Payment of Interim dividend. The directors of a company can pay interim dividend subject to the provisions of Articles. Interim dividend can be paid at any time between the two annual general meetings taking into full year depreciation on fixed assets.

(8) 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.

9. 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 transfered 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 company 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.

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