Weel ici ieee) Lam Chapter 8 Declaration and Payment of. Dividend (eens —— a Funds related to Dividend Punishment for 4 ye Nor mpliance ' v + Definition + Sec, 123: Declaration + Sec. 125: IEPF + Sec. 127: Punishment u/s 2(35) of Dividends © Establishment for failure to + Types (Final/ - Sec 124: Unpaid/ © Credits to the Fund distribute dividend Interim) Unclaimed Dividend © Utilization within 30 days nition ‘Section 2(35) “dividend” includes any interim dividend, Important points relating to dividend: > It isa distribution of profits, > Final dividend is declared & approved by shareholders (by OR at AGM) on recommendation of Board The rate of dividend declared by SH shall not exceed the amount recommended by BOD. > Dividend % is a proportion of nominal value or face value. ci m hi |]]1. Bob recommended 10% div. Can SH, by passing unanimous resolution, declare 12% dividend?- No! 2. Calculate the amount of dividend in following case: . 10; Market Value (in stock exchange) - Rs. 200; Purchase price - Rs. 190 ‘SH approved and declared dividend = 10% Amt. of dividend = No. of shares * Dividend * Face Value i.e., 50 shares * 10% * Rs. 10 Note - Market value or purchase price is irrelevant for the calculation of amt. of divi. ‘Types of dividend: Classification based on time ae ‘Announcement | Announced and declared by SH BOD at any time | Recommended by BoD and during the FY or from closure of FY till the AGM. | declared by shareholders at the AGM of the co. Source (Out of profits before final adoption of accounts. |-- Sources for interim dividend = Surplus in PL or CY profit or Prior Profits‘CA Shubham Singhal (AIR 4) Rate of Tf the company has incurred loss during the CY upto | The rate recommended Dividend preceding quarter, then dividend not to be declared | by the Board cannot at arate higher than Avg rate of dividend declared | be increased by the by co, during immediately preceding 3 FYs. members. Revocation | Can be revoked with consent of ALL shareholders. | Once declared - cannot be revoked. Dividend shall be deposited in separate A/c of a scheduled bank within 5 days from date of declaration Classification of Dividend based on Nature of Shares Bocce eae) Etingeae (ere Reeoramic Orie) lend gets accumulated idend is payable only —_| Equity shares holder do not in a year of profit. No enjoy any preferential rights for accumulation of profit idends or repayment of capital ‘Arrears in dividend due to | Holder not entitled tobe [Rate of dividend depends upon insufficiency of profits - paid arrears of dividend out | the dividend policy and availability Payable from future profits. | of future years i., right to | of profits after satisfying Pref. Unless this dividend is paid in| receive dividend expires if | SH rights full (incl, arrears), no dividend |not declared in any year. is payable to ESH Dividend shall be declared or paid by a company for any FY out of: or Profits™ for that FY (a) Undistributed profits* of any (a) Both Money provided by (current) arrived at previous FYs arrived at after (a)and(b)_-CG/SG for payment after providing for providing for depreciation as [Current _ of div. in pursuance. depreciation per Sch TI (ie., credit balance Past Profits] of guarantee given (Sch IZ) in P&L and free reserves) by the Govt /*Provided that ~ While calculating profits - exclude: > unrealised gains, notional gains, or revaluation of assets, and > any change in carrying amount of an asset/liability on measurement at fair value. ‘Transfer to Reserves - A company MAY, before declaration of dividend in any FY, transfer such % of its profits for that FY as it may consider appropriate to reserves of the company. ‘Conceptual Clarity Check: 1. Can capital reserve be used for payment of dividend? -No! Only free reserves can be used. 2. Carried over previous losses and depreciation not provided in PY has to be set off against CY profits before declaration of dividend.CA Shubham Singhal (AIR 4): 3. Capital profits are not earned in normal course of biz. Hence, not available for distribution 4, Is it okay if a company decides not to transfer any amount to reserves before dividend? - Yes! Whether or not to transfer and what % to be trf to reserve is left to discretion of the co. 2. For the purposes of Sec 123(1\(a), depreciation shall be provided in accordance with Sch IT 3. Rate of Dividend Board may declare interim dividend during any FY or at any time from closure of FY till holding of AGM out oft: > Surplus in the P&L account or > Profits of the FY for which such interim dividend is sought to be declared (past FY), or > Profits generated in the FY till the quarter preceding date of declaration of interim dividend Interim Dividend in case of loss in recent quarter (not Final Dividend) Provided that - Tn case the co. has incurred loss during the current FY up to the end of quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate> Average dividends declared by company during immediately preceding 3FYs ‘Concept clarity check: Is upper limit on rate of dividend (j.e., not > Avg of preceding 3 FY) also applicable in case if there is profit in current FY till preceding quarter? ~ No. In case of profit, % of dividend can be higher. [Very important] in the event of inadequacy or absence of profits in any year, a co. may declare dividend out of free reserves subject +6 the fulfilment of the following 3 conditions, namely: [Rate shall not exceed |{ Total amount drawn from accumulated | Balance in reserve Average of dividend | profits <= 1/10th of [PUSC+FR]as per after such drawal of 3 immediately latest audited FS not < 15% of PUSC preceeding FY* (b) Amount drawn shall first be utilised as per latest to set off losses of current FY ed FS * This sub-rule (1) shall not apply if a co, has not declared any dividend in each of 3 preceding FY. 4. Dividend (incl. interim) - Deposit in separate a/c with scheduled bank within 5 days from declaration 5. Dividend shall be paid by a co. only to the: Registered shareholder of such share or tohis order or to his banker and shall not be payable except in cash Declaration and Payment of bivdend NaCA Shubham Singhal (AIR 4) Provided that nothing in this sub-section shall be deemed to prohibit the capitalisation of profits or reserves of a company for the purpose of issuing Fully paid-up bonus shares or paying up any amount for the time being unpaid on any shares held by the members of the company. Concept clarity check: 1. Mp, Singh has purchased shares of Burraaah Ltd. from Mr. Jai by making full payment. However, transfer of shares is not yet registered with the co, Meanwhile, the co. announces dividend, Is the company allowed to pay the dividend to Mr. Singh? - No. In such case, the company will keep the dividend till the registration is pending (Discussed in detail in sec 126) 2. Cana company issue bonus shares in lieu of dividend ~ No. Dividend can only be paid in cash. 3. Can a company pay dividend via bank? ~ Absolutely Yes. Cash doesn't mean hard cash. It means ~ Cash, cheque, dividend warrant or via any e-mode. 6. A company which fails to comply with the provisions of sections 73 and 74 shall not, so long as such failure continues, declare any dividend on its equity shares. Note: Section 8 companies are prohibited from paying any dividend to its members. Its profits are intended to be applied only in promoting the objects for which it is formed, [Sec 8] Bonus Point What is record date? - Record date is the date announced by the company for determining members who are entitled to dividend, All person whose name is included in the register of members on the record date shall be entitled to dividend. Section 124: Unpaid Dividend Account (Refer timeline at the end of this chapter), 1. Where a dividend is declared but not paid or claimed within 30 days from the date of declaration, > the company shall, within 7 days from the expiry of the said 30 days, > transfer the total unpaid/unclaimed amount of dividend to a special account (with scheduled bank) called the Unpaid Dividend Account (UDA) 2. Preparing of Statement of the Unpaid Dividend > Within 90 days of transferring any amount to the Unpaid Dividend Account > prepare a statement containing the following: Name Last known address Unpaid dividend amount > and place it on website and on any other website approved by CG for this purpose. 3. Payment of Interest on default If default is made in transferring the total amount u/ss (1) to UDA, company shall: > Pay interest @12% pa. from the date of such default > Interest accruing on such amount shall ensure to benefit of members of the co. in proportion to amt. remaining unpaid to them. “Declaration and Payment of DividendCA Shubham Singhal (AIR 4) 4, Claimant shall apply to co. concerned for payment of unpaid amount (prior to trf. to TEPF) 5. Transfer of Unclaimed or unpaid amount to Investor Education and Protection Fund (TEPF) > If remains unpaid or unclaimed for 7 years from the date of such transfer > Tt shall be transferred by the company along with interest to the ZEPF, and > Aprescribed statement containing details of such transfer shall be sent to IEPF Authority & > Authority to issue receipt as an evidence of such transfer. |]6. ‘Transfer of Shares to TEPF All shares in respect of which dividend has not been paid/claimed for >= 7 consecutive years shall be transferred by the company in the name of TEPF along with a statement containing such details. Author's Note - Note that this section is talking about transfer of the "shares" itself and not the unpaid amount of dividend. The trf, of unpaid amount is already discussed u/ss (5) Provided that any claimant of shares trfd, above shall be entitled to claim the transfer of shares ‘from TEPF with such procedure and on submission of such documents as may be prescribed, Explanation: In case any dividend is paid or claimed for any year during the said period of 7 consecutive years, the share shall not be transferred to Investor Education and Protection Fund. 7. Punishment for Contravention of this sectio Penalty Rs. 1 lakh + Rs, 500/day after first Rs. 25,000 + Rs. 100/day Max penalty | Rs. 10 lakhs Rs. 2 lakhs: Cee ea una) (Read with TEPF Authority (Accounting, auditing, transfer and refund) Rules 2016) 1. The CG shall establish a Fund to be called the Investor Education and Protection Fund (LEPF) 2. There shall be credited to the Fund— a) the amount given by the CG by way of grants after due appropriation made by Parliament by {aw in this behalf for being utilised for the purposes of the Fund: b) donations given to the Fund by C6, SG, cos. or any other institution: ©) the amount in Unpaid Dividend Account of companies transferred to Fund u/s 124(5) d) the amount in general revenue account of the CG which had been transferred to that account u/s 205A (5) of Companies Act, 1956 and remaining unpaid on commencement of this Act: @) the amount lying in TEPF u/s 205C of the Companies Act, 1956; ||) the interest or other income received out of investments made from the Fund, (fa) all shares held by TEPFA u/s 90(9) of the Act and all resultant benefits out of such shares g) the amount received under section 38(4); h) the application money received by companies for allotment of any securit refund: 3 Declaration and Payment of vividend‘CA Shubham Singhal (AIR 4) Ti) matured deposits with companies other than banking companies: J) matured debentures with companies; k) interest accrued on the amounts referred to in clauses (h) to (j); 1) sale proceeds of fractional shares arising out of bonus shares, merger, etc. for >=7 yrs im) redemption amount of preference shares remaining unpaid or unclaimed for >=7 yrs; and n) such other amount as may be prescribed. Provided that no such amount referred to in clauses (h) to (j) shall form part of the Fund unless such amount has remained unclaimed and unpaid for 7 years from date it became due for payment. ‘Summary da Summary C6 grants Davationby Amt. oF UDA General IEPF in Co. ince om as 6/SG/Cos.. u/s 124. ~—-Revenue A/C Act 1956 mi investment an Matured sale proceeds Redemption Shares held Amount Application "deposit or of fractional _ of pref. by IEPFA disgorged money a a Tienes) debenture+ shares shares (=7 + Benefits s y Intt. G7 yrs) @=7 yrs) yrs) thereon 3, The Fund shall be utilised for: [CD PRO] a) the refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon b) promotion of investors’ education, awareness and protection; c) distribution of any disgorged amount among eligible and identifiable applicants for shares or debentures, shareholders, debenture-holders or depositors who suffered losses due to wrong actions by any person, in accordance with orders made by the Court which had ordered disgorgement: d) reimbursement of legal expenses incurred in pursuing class action suits u/s 37 and 245 by members, debenture holders, or depositors as may be sanctioned by the Tribunal; and e) any other purpose incidental thereto, in accordance with such rules as may be prescribed: Provided that, where, as per provision of Sec 205C of Co. Act, 1956, amount is transferred to IEPF, after the expiry of 7 yrs, such person shall be entitled to get refund out of TEPF (constituted under Co, Act 2013) 4, Any person claiming to be entitled to amt referred u/ss (2) may apply to TEPFA for payment thereof. 5. CG to constitute, by notification, an authority for administration of Fund consisting of: 0 CEO (appt. by C6) eile etd (including CP) Chairperson [ex-officio - Secretary, MCA]Peon ett) 6. Manner of administration, appt. of members, holding of IEPFA meetings- As per prescribed rules 7. Resources - CG may provide to IEPFA such offices, officers, employees, etc. - as prescribed. 8. The authority shall administer the Fund and maintain separate accounts and other relevant records in relation to the Fund in such form as may be prescribed after consultation with C&AG. 9. Ttshall be competent for TEPFA to spend money out of Fund for carrying out the objects of TEPF. 10. Accounts of the Fund shall be audited by the C&AG of India (at specified intervals). Audited accounts + audit report to be forwarded annually by TEPFA to the CG. 11, Annual Report: > TEPFA to prepare its annual report (prescribed form and time for each FY) > Giving full account of its activities during the FY and > Forward a copy thereof to the C6 and > CG shall cause annual report + audit report to be laid before each House of Parliament 126. Right to dividend, rights shares and bonus shares 16 be held ih eee aurea > Notwithstanding anything contained in any other provision of this Act, > Where any instrument of transfer of shares has been delivered to any co. for registration and > Such transfer has not been registered by the co., > Such company shall: Transfer the dividend w.r.t. such shares to UDA account Keep in abeyance - Any offer (unless the co is authorised, in writing by registered _r1, of right shares u/s 62(1Ka) holder to pay such dividend to transferee specified in or issue of fully paid up bonus transfer instrument) shares GUA Commerc > Where a dividend has been declared > But, within 30 days of such declaration, it has not been paid or warrant has not been posted, to entitled SH, > The punishment shall be: Er icac mos Biocon ‘Imprisonment Extend to 2 years AND NA Fine - During the period |Not declaration of dividend is announced in local language in one local newspaper of wide circulation. > announcement is also displayed on the notice board of the Nidhi for at least 3 months. ‘Concept clarity check: “The company is responsible to post the dividend warrant within 30 days of declaration of dividend. However, if such post doesn't reach SH within 30 days, it's not the responsibility of the co. Hence, company cannot be penalised if warrant doesn't reach before 30 days. Dividend Timeline: 30 days __Tyears 5 days 7 days 90 days alee 1 1%} 12% Y _ + (Declared ) Deposit | (Pay dividend) Transfer |{ Statement 1 After 7 years ~' dividend amount) amount to || unpaid or | of unpaid | from trf to in separate || shareholder | unclaimed || dividend | UDA Trf | bank Ale | J } | website | LO ividend to TEPF } The End Declaration and Payment of Dividend