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:-
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.
Provisions of Articles of Association. Rules
85 to 94 of Table A provide that-
company may declare dividend its general meeting provided it does not
exceed the a mount recommenced by the board of directors.
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
of any dividend should be given to those who are entitled to receive
directors my transfer an amount they think p[roper to the reserve
fund which may be utilised for any contingencies.
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.
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.
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.
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
cannot be paid out of accumulated profits unless current losses are
Payment of dividend only
in Cash [ Sec. 205 (iii)]. Dividends are to be paid in cash only
except in the following circumstances-
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.
paying up any unpaid amount on partly paid up shares.
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.
Payment of Dividend within 42 days (Sec. 207) Dividend
must be paid within 42 days of its declarations except in the
operation of law of insolvency;
compliance of the directions of the shareholders;
right to receive dividend is pending decision;
it is not due to the default of the company.
company lawfully adjusts the amount against any debt due form the
(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
(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
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.