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Dividend

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..... the profits of a company that is distributed amongst the members of the company. The term dividend has been inclusively defined in the Companies Act, 1956 ( the Act ), to the effect that it includes interim dividend. The Act neither specifically defines the term dividend nor makes any distinction between interim and final dividend. Scope The principles enunciated in this standard for dividend relate to dividend under the Act and are governed by the provisions of sections 205 , 205A , 205B , 205C , 206, 206A , 207 of the Act and also by the Companies (Transfer of Profits to Reserves) Rules, 1975 , the Companies (Declaration of Dividend out of Reserves) Rules, 1975 and the Investor Education and Protection Fund (Awareness and Protection of Investors) Rules, 2001 . The provisions of section 27 of the Securities Contracts (Regulation) Act, 1956 are also applicable as are, in the case of listed companies, the requirements of the Listing Agreement. Any specific provision relating to dividend in the Income-tax Act, 1961 , and any other statute would, in addition, be applicable as set out in that statute/legislation. The principles set out herein relate to .....

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..... ctions of the Act and regulations of Table A of the Act, unless otherwise stated. Secretarial Standards 1. Ascertainment of amount available for payment/distribution as dividend. 1.1 Out of profits 1.1-1 Dividend should be paid out of the profit of the company for the financial year or out of profit(s) for the previous financial year(s) which have not been transferred to reserves, or out of both, only after providing for depreciation for the year and arrears of depreciation, if any. Dividend, being a portion of the profits of the company, is distributable amongst the members of the company in accordance with the provisions of the Act. The Act requires a company to prepare a profit and loss account which should give a true and fair view of the profit or loss of the company for a financial year. The Act does not define the word profit or the expression true and fair . These words and expressions should, therefore, be understood in their natural and proper sense. This would imply that the profit and loss account should be prepared and presented in conformity with the requirements set out in the Act and the generally accepted principles of accounting, which sh .....

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..... lance in the profit and loss account, the company should make the prescribed transfer to reserves as if the Companies (Transfer of Profits to Reserves) Rules, 1975 are applicable. However, the company would not, in such a case, be required to comply with the Companies (Declaration of Dividend out of Reserves) Rules, 1975. The Companies (Transfer of Profits to Reserves) Rules, 1975 only apply to equity dividend and to that portion of dividend relating to participating preference shares which is in excess of the fixed rate of preference dividend. 1.1-5 Interim dividend, if declared, is payable out of estimated profit for the period for which interim dividend is to be declared, after taking into account depreciation for the full year and arrears of depreciation, dividend at the contracted rate on preference shares, if any, appropriations and transfers to statutory reserves, taxation, and the provisions of the Companies (Transfer of Profits to Reserves) Rules, 1975. Interim dividend may be declared after the Board has considered the interim financial statements for the period for which interim dividend is to be declared and is satisfied that the financial position of .....

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..... , is ten per cent of paid-up capital while the Companies (Transfer of Profits to Reserves) Rules, 1975 become applicable only in respect of declaration of dividend at a rate exceeding ten per cent. Hence, any company, which draws from its reserves to pay dividend, will not be required to make any appropriation to reserves in terms of the Companies (Transfer of Profits to Reserves) Rules, 1975 since the dividend declared by it from the reserves cannot exceed ten per cent. 1.2-2 Interim dividend should not be declared out of reserves. While final dividend may be paid out of free reserves, no interim dividend should be paid, in the event of a loss or inadequacy of profits, by transfers out of any reserves. 2. Declaration of dividend 2.1 Dividend should be declared only on the recommendation of the Board, made at a meeting of the Board. The recommendation for declaration of dividend should not be made by a committee of the Board nor by way of a resolution passed by circulation. Unless the dividend has been recommended by the Board, members in general meeting cannot on their own declare any dividend. Where a company has an audit committee, this committee shou .....

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..... n electronic form, to those persons whose names appear as beneficial owners in the statement(s) furnished by the depository(ies) as on the close of the market day prior to book closure or, in the case of interim dividend, on the record date; (ii) in respect of shares held in physical form, to those shareholders whose names appear on the company s register of members after giving effect to all valid share transfers in physical form lodged with the company before the date of book closure or, in the case of interim dividend, on the record date; and (iii) in respect of share warrants, to the holders of such warrants. 3.2 Preference shareholders should be paid dividend before dividend is paid to the equity shareholders of the company. Preference shares carry a preferential right as to dividend in accordance with the terms of issue and the articles. However, this right is subject to the availability of distributable profits. If there are two or more classes of preference shares, the holders of the class which has priority are entitled to their preference dividend before any dividend is paid in respect of the other class, if the terms of issue so provide. If the terms of issue .....

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..... vidend after deducting tax at source, if applicable, should be deposited in a separate bank account within five days from the date of declaration of dividend. Dividend should be paid out of such bank account within thirty days of declaration. 5.2 Dividend should be paid in cash, not in kind. Dividend payable in cash may be paid by cheque or warrant or demand draft or pay order or may be credited to the bank account of the member in terms of a mandate given by the member. The cheque or warrant or demand draft or pay order should be sent to the registered address of the member and, in the case of joint holders, to the registered address of the person named first in the register of members or to such person or to such address as the member or the joint holders have directed, in writing. 5.3 Initial validity of the dividend warrant should be for three months. A cheque or warrant for payment of dividend should be valid for three months from the date thereof and, where such cheque or warrant remains unpaid after this initial period of validity, it should be revalidated for not more than three months or a fresh instrument should be issued which should have a validity .....

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..... period of the financial year in respect of which it is paid. If any shares are issued on terms providing that they shall rank for dividend as from a particular date, dividend on such shares should be paid accordingly. 5.7 Calls in arrears and any other sum due from a member may be adjusted against dividend payable to the member. In the case of listed companies, calls in arrears or any other sum due from a member in the capacity of a member may be adjusted against the dividend payable to him after giving such notice, as may be required. In the case of other companies, unless the articles provide otherwise, any other sums due from a member, in a capacity other than as a member, may also be adjusted against the dividend payable to him. Standards 5.1 to 5.7 shall also apply to interim dividend. 6. Unpaid Dividend 6.1 The amount of dividend which remains unpaid or unclaimed after thirty days from the date of declaration should be transferred to a special dividend account, to be called unpaid dividend account of the company, within seven days from the date of expiry of the thirty days period provided for payment of dividend. The company should maintain the detai .....

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..... Standard 8.1 shall also apply to interim dividend. 9. Disclosure 9.1 The balance sheet of the company should disclose under the head current liabilities and provisions , the amount lying in the unpaid dividend account together with interest accrued thereon, if any. 9.2 The annual report of the company should disclose the total amount lying in the unpaid dividend account of the company in respect of the last seven years. The amount of dividend, if any, transferred by the company to the Investor Education and Protection Fund during the year should also be disclosed. The amounts lying in the unpaid dividend account and the amounts transferred to the Investor Education and Protection Fund should be disclosed in the directors report. 9.3 The annual return of the company should mention that the amount of dividend remaining unpaid or unclaimed for a period of seven years from the date such dividend became payable by the company, together with interest accrued thereon, if any, has been credited to the Investor Education and Protection Fund. Standards 9.1 to 9.3 shall also apply to interim dividend. Effective Date This Standard shall come into effect f .....

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