Dividends - Transfer of unpaid dividend ‑ Scope of the section explained in the context of expressions “has not been paid” and “warrant in respect thereof has not been posted” used therein. - Companies Law - Circular: No. 7/77

Circular: No. 7/77 [6/8/76 ‑ CL ‑ XIV and 8/30/(205A)/75 ‑ CL ‑ V], dated 4 ‑ 6 ‑ 1977. Subject:- Dividends - Transfer of unpaid dividend ‑ Scope of the section explained in the context of expressions has not been paid and warrant in respect thereof has not been posted used therein. Reference may be made to this Department s Circular No. 28/76, dated 1‑9‑1976 (printed as Clarification 3), in which it was clarified that the two expressions has not been paid and the warrant in respect thereof has not been posted used in section 205A denote two separate contingencies and the provisions of this section do not apply to a case where a company has posted the dividend warrant within forty-two days from the date of declaration of dividend but the dividend warrant has not been encashed within the period of seven days after the expiry of the forty‑second day. In this connection, a question has been raised as to what will happen to the dividend represented by such of the warrants which even though posted within the period of forty‑two days remained uncashed. The question has been examined and the Department is advised that by opening a special account envisaged under section 205A and depositing the unpaid dividend in that account, the company is prevented from utilising that money for its day‑to‑day business purposes. This is on the principle that the dividend declared has to be treated as a debt owed by the company to the shareholder and, therefore, it is shareholder s money which has to be separately kept to be paid to him/her on demand, and under section 205A(5) the company is empowered to make payment to the shareholder if a demand is made within three years and thereafter the amount is to be deposited with the Central Government. In the aforesaid premises, the amount of dividend which has not been actually claimed, for whatever reasons, even though the warrant thereof has been posted within the statutory period of forty‑two days, has to be deposited in the special unpaid dividend account of the company.