Procedures under Companies Act, 2013

Procedure for declaration and payment of interim dividend by the board of directors

In accordance with the provisions of sub-section (3) of section 123,the Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared.

Key Considerations:

  •  A company may, if so authorised by its articles, pay dividends in proportion to the amount paid up on each share.[Section 51]
  •  Interim dividend must be declared out of the surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared.[Section 123(3)]
  •  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. [Provison to Section 123(3)]

The following procedure is to be followed for Declaration and Payment of Interim Dividend by the Board of Directors [Section123 to 127and Companies (Declaration and Payment of Dividend) Rules, 2014] :-

1. Issue not less than 7 days’ notice of Board meeting, or a shorter notice in case of urgent business, in writing to every director of the company at his address registered with the company and call a Board Meeting to consider the position of accounts to ascertain that whether there is sufficient profits to declare interim dividend. Also follow the procedure prescribed for issuing and signing of notice of Board Meeting.

2. Hold a meeting of Board of Directors and consider in detail all the matters with regard to the declaration and payments of an Interim Dividend including:

(a) Ascertain whether financial position of the Company allows the payment of Interim dividend out of profits available for distribution (after providing depreciation)[Section 123(1)(a)] ;

(b) Percentage of profits to be transferred to reserves. [Proviso to Section 123(1)]

(c) quantum of dividend;

(d) closure of register of members for payment of interim dividend or fixation of record date;

(e) opening of separate bank account;

(f) printing of dividend warrants;

(g) authority for signing the dividend warrants;

(h) Pass a suitable Board Resolution for declaration and payment of interim dividend and approving the above said details.

3. Prepare and circulate draft minutes within 15 days from the date of the conclusion of the Board Meeting, by hand/speed post/registered post/courier/e-mail to all the Directors for their comments. Also follow the procedure prescribed for preparing, circulation, signing and compiling of Board Minutes.(Secretarial Standards-1)

4. Close the register of members and the share transfer registers of the company, as decided by the Board.

5. Hold a meeting of board of directors for approving a registration of transfer/transmission of the shares of the company, if any, which have been lodged with the company prior to the commencement of book closure/record date.

6. Prepare dividend list from the Register of members/beneficial owners, on and from the last date of closure of books or as on record date in respect of each shareholders containing the following details:

  •  Name and address of shareholder with ledger folio no.
  •  Number of shares held
  •  Dividend payable

7. Open a Separate Bank Account with the scheduled bank as resolved by the Board and deposit the amount of dividend payable in the account within 5 days of declaration of such dividend.[Section 123(4)]

8. Ensure that the dividend tax is paid to the tax authorities within the prescribed time.

9. Pay dividend within 30 days of its declaration by a company to the registered shareholder or to his order or to his banker and shall be payable in cash. 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.[Section 123(5)]

10. Arrange for the transfer of unpaid or unclaimed dividend to a special account named “Unpaid dividend Account” in any scheduled bank within 7 days after the expiry of the period of 30 days of declaration of dividend.[Section 124(1)]

11. Where an instrument of transfer has been received by company prior to book closure but transfer of such shares has not been registered, then transfer the amount of dividend in relation to such shares to the Unpaid Dividend Account unless the registered holder of these shares, authorizes company in writing to pay dividend to the transferee specified in said instrument of transfer. [Section 126(a)]

12. Within 90 days of making any transfer to the Unpaid Dividend Account, prepare a statement containing the names, their last known addresses and the unpaid dividend to be paid to each person in Form No. 5 INV and place it on the website of the company, if any, and also on any other website approved by the Central Government for this purpose. [Section 124(2)]

13. Transfer Unpaid Dividend amount along with interest accrued, if any, to the Investor Education and Protection Fund after the expiry of 7 years from the date of transfer to unpaid dividend account. [Section 124(5)]

14. Company shall remit the amount required to be credited to the Fund 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. The amount shall be tendered by the companies along with challan (in triplicate) to the specified Bank Branches of Punjab National Bank and other authorised banks under MCA-21 system who will return two copies of the challan, duly stamped in token of having received the amount, to the Company. [Rule 5(1) and 5(2) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016] The amount may also be remitted by Electronic Fund Transfer in such manner, as may be specified by the Central Government. [Rule 5(5) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016].

15. Company shall file with the concerned Authority one copy of the challan referred above indicating the deposit of the amount to the Fund and shall fill in the full particulars of the amount tendered, including the head of account to which it has been credited. The company shall, along with the copy of the challan as referred above, furnish a Statement in Form No. IEPF 1 containing details of such transfer to the Authority within thirty days of submission of challan. [Rule 5(3) and 5(4) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]

16. Company shall maintain record consisting of name, last known address, amount, folio number or client ID, certificate number, beneficiary details etc. of the persons in respect of whom unpaid or unclaimed amount has remained unpaid or unclaimed for a period of seven years and has been transferred to the Fund and the Authority shall have the powers to inspect such records.[Rule 5(5)(c) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]

17. All shares in respect of which unpaid or unclaimed dividend has been transferred to the Investor Education and Protection Fund shall also be transferred by the company in the name of Investor Education and Protection Fund. [Section 124(6)].

18. Confirm the interim dividend in the next Annual general Meeting of the Company.

Notes:

1. No offence for failure to distribute dividend will be deemed to have been committed in the following cases:-

  •  where the dividend could not be paid by reason of the operation of any law;
  •  where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with and the same has been communicated to him;
  •  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; or
  •  Where, for any other reason, the failure to pay the dividend or to post the warrant within the period was not due to any default on the part of the company.[Section 127]

2. A company which fails to comply with the provisions of sections 73 and 74 i.e. Repayment of deposits accepted shall not, so long as such failure continues, declare any dividend on its equity shares.[Section 123(6)]

3. If any default is made by company in transferring the amount to the Unpaid Dividend Account then from the date of such default, interest at the rate of 12% per annum shall be payable by the Company and the interest accruing on such amount shall enure to the benefit of the members of the company in proportion to the amount remaining unpaid to them. [Section 124(3)]

4. Any person claiming to be entitled to any money transferred to the Unpaid Dividend Account of the company may apply to the company for payment of the money claimed. [Section 124(4)]

5. Every company shall within a period of ninety days after the holding of Annual General Meeting or the date on which it should have been held as per the provisions of section 96 of the Act 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, as on the date of holding of Annual General Meeting or the date on which it should have been held as per the provisions of section 96 of the Act, separately furnish and upload on its own website and also on website of Authority or any other website as may be specified by the Government, a statement or information through Form No. IEPF 2, separately for each year, containing following information, namely:- (a) the names and last known addresses of the persons entitled to receive the sum; (b)the nature of amount; (c) the amount to which each person is entitled; (d)the due date for transfer into the Investor Education and Protection Fund; and (e) such other information as may be considered relevant for the purposes. [Rule 5(8) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]

6. The company shall furnish a statement to the Authority in Form No. IEPF 6 within thirty days of end of financial year stating therein the amounts due to be transferred to the Fund in next financial year. The company shall also furnish a statement to the authority within thirty days of the closure of its accounts for the financial year stating therein the reasons of deviation, if any, of amounts detailed within thirty days of end of financial year, and actual amounts transferred to the Fund. [Rule 8(1) and 8(2) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]

7. Company shall, within thirty days from the end of financial year, furnish details of shares which cannot be transferred to the Fund and unpaid dividend to the Authority in Form No. IEPF 3. [Provison to Rule 6(3) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016]

8. For shares to be transferred to IEPF, company shall follow the following procedure:

a. Company shall inform, at the latest available address, the shareholder concerned regarding transfer of shares three months before the due date of transfer of shares and also simultaneously publish a notice in the leading newspaper in English and regional language having wide circulation informing the concerned that the names of such shareholders and their folio number or DP ID - Client ID are available on their website duly mentioning the website address.

b. Board of Directors shall authorise the Company Secretary or any other person to sign the necessary documents and then the shares shall be credited to DEMAT Account of the Authority to be opened by the Authority for the said purpose, within a period of thirty days of such shares becoming due to be transferred to the Fund. (Rule 6 of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.]

c. For the purposes of effecting the transfer, where the shares are dealt with in a depository- (i) the Company shall inform the depository by way of corporate action, where the shareholders have their accounts for transfer in favour of the Authority. (ii) on receipt of such intimation, the depository shall effect the transfer of shares in favour of DEMAT account of the Authority. [Rule 6 (3)(c)of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.]

d. For the purposes of effecting the transfer where the shares are held in physical form- (i) the Company Secretary or the person authorised by the Board shall make an application, on behalf of the concerned shareholders, to the company, for issue of duplicate share certificates; (ii) on receipt of the application under clause (a), a duplicate certificate for each such shareholder shall be issued and it shall be stated on the face of it and be recorded in the register maintained for the purpose, that the duplicate certificate is “Issued in lieu of share certificate No..... for purpose of transfer to IEPF” and the word “duplicate” shall be stamped or punched in bold letters on the first page of the share certificate; (iii) particulars of every share certificate issued as above shall be entered forthwith in a register of renewed and duplicate share certificates maintained in Form No. SH-2 as specified in the Companies (Share Capital and Debentures) Rules, 2014; (iv) after issue of duplicate share certificates, the company shall inform the depository by way of corporate action to convert the duplicate share certificates into DEMAT form and transfer in favour of the Authority. [Rule 6 (3)(d)of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.]

9. The company shall make such transfers through corporate action and shall preserve copies for its records. [Rule 6 (4)of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.]

10. Company shall send a statement to the Authority, while effecting such transfer, in Form No. IEPF 4 containing details of such transfer. [Rule 6 (5)of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.]

11. The voting rights on shares transferred to the Fund shall remain frozen until the rightful owner claims the shares. [Rule 6(6) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.]

12. Shares shall not be required to be credited to the Fund in the following situations:

a. In case the beneficial owner has encashed any dividend warrant during the last seven years, such shares shall not be required to be transferred to the Fund even though some dividend warrants may not have been encashed. (Rule 6(1) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.]

b. In case, where there is a specific order of Court or Tribunal or statutory Authority restraining any transfer of such shares and payment of dividend or where such shares are pledged or hypothecated under the provisions of the Depositories Act, 1996 or shares already been transferred under sub-rule (1) above, the company shall not transfer such shares to the Fund. (Rule 6(3) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.]

13. Company shall maintain the details of shareholding of each individual shareholders whose shares have been credited to the DEMAT account of the Authority. (Rule 6 of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.]

14. All benefits accruing on such shares e.g., bonus shares, split, consolidation, fraction shares etc., except right issue shall also be credited to such DEMAT account. Any further dividend received on such shares shall be credited to the Fund and a separate ledger account shall be maintained for such proceeds. (Rule 6(7), 6(8) and 6(12) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.]

15. Any claimant of shares transferred above shall be entitled to claim the transfer of shares from Investor Education and Protection Fund in accordance with such procedure and on submission of such documents as may be prescribed.[Provison to Section 124(6)]

Procedure Authors

ACS Divya Jain
ACS Palak Jain
ACS Ankita Jain
ACS Sugandh Jain
ACS Mansi Kapor
ACS Bhawna Sharma


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