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Dividend means, the profit which is distributed among the shareholders in proportion to the amount paid up on the shares held by them and is not retained in the Business. The term Dividend is defined under Section 2(35) of the Companies Act, 2013.

Dividend for a Financial Year or Final Dividend is payable only when it is approved by the Members / Shareholders at the Annual General Meeting on Recommendation of Directors. Sometimes Dividend is also paid between two Annual General Meetings without approval of Members / Shareholders at Annual General Meeting which is Interim Dividend.


Dividend can be declared out of the Profits of Company after providing for depreciation or out of Free Reserves or out of Undistributed Profits of any Previous Financial Year after providing for depreciation or out of the money provided by Central Government or State Government for payment of dividend in pursuance of guarantee given by that government. PROVISO- Before Declaration of Dividend, a Company may transfer certain amount from profit to Reserves and the Company can freely decide the percentage of amount to be transferred is not fixed. The Company can also declare dividend from Free Reserves if it does not have adequate profit.


If Company has surplus profits then it can also declare Interim Dividend. This dividend is paid between two Annual General Meeting without declaring it in the Annual General Meeting. Interim Dividend can be declared out of the surplus in the profit and loss account and out of the profits of financial year in which such interim dividend is sought to be declared. PROVISO-If Company is incurring Loss as per financials of latest quarter; interim dividend shall not be higher than average dividend declared by company during last three financial years.


The amount of Dividend or interim Dividend shall be deposited in a separate account with a scheduled Bank within 5 days of declaration of Dividend.


Dividend shall be payable to only registered shareholder of such share or to his order or to his banker.


(a) Capitalization of profits or reserves of the Company for issue of fully paid-up bonus shares or for making payment of amount unpaid on any shares is not prohibited,

(b) Dividend payable in cash may be paid by cheque or warrant or in any electronic mode to the shareholder entitled to the payment of dividend.


A Company which fails to comply with the provisions of section 73 and 74 relating to deposits and repayment of deposit shall not declare dividend on equity shares until such failure continues.


Dividend should be paid or claimed within 30 days from the date of declaration of dividend, but if it is not paid or claimed within 30 days then Company has to transfer the total amount of dividend unpaid or unclaimed to a special account to be opened by company with any scheduled bank within 7 days of the expiry of 30 days. So, amount should be transferred within 37 days of declaration of dividend.


The Company shall, within a period of 90 days of making transfer to unpaid dividend account prepare a statement containing details of persons to whom dividend is not paid or not claimed by them within 30 days of declaration of dividend. The statement contains their names, addresses and unpaid dividend to be paid to each person and place it on the website of company.


If Company has made default in transferring the total amount of dividend unpaid or unclaimed to unpaid dividend account then Company has to pay interest at the rate of 12% per annum on such amount that has not been transferred from the date of such default and such interest shall serve the benefit of members of company in proportion to amount remaining unpaid on them.

SECTION 124(4) any person claiming to be entitled to any money transferred to unpaid dividend account may apply to the company for payment of money claimed.

SECTION 124(5) any money that remains unclaimed or unpaid for a period of seven years from the date of such transfer shall be transferred to IEPF (Investors Education and Protection Fund) established under sub section (1) of section 125 of Companies Act,2013.

SECTION 124(6) All shares in respect of which unclaimed or unpaid dividend is been transferred shall also be transferred to IEPF. PROVISO- Claimant shall be entitled to claim the shares transferred to IEPF.

SECTION 124(7) In case of any default in complying with the above provisions Company shall be liable to a fine of five lakh rupees which may extend to twenty five lakh rupees and every Officer of the Company shall be liable to a fine of one lakh rupees which may extend to five lakh rupees.


Central Government shall establish a Fund called Investor Education and Protection Fund (hereinafter called Fund). According to INVESTOR EDUCATION AND PROTECTION FUND AUTHORITY (Accounting, Audit, Transfer and Refund) RULES, 2016. Authority shall administer the Fund and following shall be credited to the fund:-

  • All amounts payable as mentioned in the Clause (a) to (n) of Section 125(2) of the Companies Act, 2013;
  • All shares in accordance with Section 124 (6) of the  Act;
  • All the resultant benefits arising out of shares held by the Authority under above Clause;
  • All grants, fees and charges received by the Authority under these Rules;
  • All sums received by the Authority from such other sources as may be decided upon in the Central Government;
  • All income earned by the Authority in any year;
  • All amounts payable as mentioned in Section 10B(3) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and Section 10B of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980; and
  • All other sums of Money collected by the Authority as envisaged in the Act.

IEPF constituted under section 125 can be utilized for the following:

  • refund in respect of unclaimed dividends, matured deposits, matured debentures,
  • the application money due for refund and interest thereon;
  • promotion of investors’ education, awareness and protection;
  • distribution of any disgorged amount among eligible and identifiable applicants for
  • shares or debentures, shareholders, debenture-holders or depositors who have
  • suffered losses due to wrong actions by any person, in accordance with the orders
  • made by the Court which had ordered disgorgement;
  • reimbursement of legal expenses incurred in pursuing class action suits by members, debenture-holders or depositors as may be sanctioned by the Tribunal; and  any other purpose incidental thereto.


If any instrument of transfer of shares has been delivered to company but company not yet registered such transfer then (a) company shall transfer dividend in relation to such shares to unpaid dividend account and any offer of right shares/bonus shares shall be kept in abeyance unless the company is authorized by registered holder of such shares in writing to pay such dividend to transferee.


If any Company fails to pay dividend or the warrant has not been posted to any shareholder entitled to dividend then-

  1. Every Director of the Company shall be punishable with imprisonment which may extend to two years and with fine which shall not be less than one thousand rupees for every day during which default continues,
  2. Company shall be liable to pay simple interest at the rate of 18% per annum during period for which default continues.

PROVISO - No offence under this section shall be deemed to have been committed-

  • If dividend could not be paid by reason of operation of any law;
  • If shareholder has given directions for payment of dividend and company has not complied with the directions and communicated about the same to him;
  • If there is dispute regarding payment of dividend;
  • If dividend has been lawfully adjusted by company against any sum due;
  • If failure to pay dividend is not because of any default by company.

NOTE- All sections are with reference to Companies Act, 2013.


  • Issue notice for holding Board meeting to all the directors at least 7 days earlier of the date of board meeting and in case of listed company inform stock exchange at least 2 working days in advance about the board meeting in which dividend to be recommended.
  • Hold Board Meeting to pass the necessary Resolutions, like recommending percentage of final dividend, for further approval of Shareholders at ensuing Annual General Meeting, approving annual accounts, approving notice of Annual General Meeting etc.
  • Company may transfer such percentage of profits to reserves as it considers appropriate from current profits.In case of listed company, intimate stock exchange about the decision at Board Meeting within 15 minutes of its conclusion.
  • Publish notice of Book Closure in newspaper at least 7 days before the date of book closure and in case of listed companies, notice of book closure shall be given to stock exchange at least 7 working days before the date of book closure/Record date. Time gap between two book closures would be at least 30 days.
  • Close the Register of Members and Share Transfer Register, hold a Board /committee meeting for approving transfer/transmission of shares lodged with the company up to the date of commencement of book closure.
  • Hold the Annual General Meeting and pass an ordinary resolution approving the payment of dividend to the shareholders of the company as recommended in Board Meeting. Shareholders cannot declare dividend at a rate higher than one recommended by board but they may declare dividend at lower rate.
  • If a Company has declared dividend at Annual General Meeting then it cannot declare dividend at an Extraordinary General Meeting held in the same year it is beyond the powers of the company. Dividend is paid in proportion to the number of shares held by each shareholder.
  • In case of preference shares, dividend is paid at a fixed rate. In case of equity shares, dividend is paid on paid- up value of shares.
  • Prepare a statement of dividend in respect of each shareholder. Ensure that dividend tax should be paid to the tax authorities within 14 days of declaration of dividend.
  • Open a separate bank account for payment of dividend and total amount of dividend payable shall be credited to account within 5 days of declaration of dividend.
  • Make arrangements with bank for payment of dividend warrants, sufficient warrants should be printed and dividend warrants should be filled in and signed by persons authorized by the Board.
  • Dispatch dividend warrants within 30 days of the declaration of dividend. In case of joint shareholders, dividend warrants shall be dispatched to the first named shareholder. Instruction that dividend should be paid at par should be sent by bank.
  • In case of listed company, it has to mandatorily use any electronic mode of payment such as Electronic Clearing Services (ECS)/National ECS/Regional ECS/National Electronic Fund Transfer (NEFT) etc. either directly or through Registrar to issue and Share Transfer Agent (RTI and STA). Company or RTI and STA shall maintain requisite bank details of investors.
  • In case of listed companies as a good practice publish a notice in the newspaper circulating in the district where registered office is situated that dividend warrants have been dispatched and advising members who did not receive them to intimate about it to the company within 15 days. Issue cheques to those members who inform that they receive dividend warrants.
  • Any unpaid or unclaimed amount of dividend shall be transferred to special account ‘unpaid dividend account’ within 7 days after expiry of period of 30 days of declaration of final dividend.
  • Any amount which remained unpaid or unclaimed for a period of seven years shall be transferred to Investors Education and Protection fund.


Rule 1 - Rules may be called the Companies (Declaration and Payment of Dividend) Rules, 2014and they come into force on 1st day of April 2014.
Rule 2 -Definitions
Rule 3 – Declaration of dividend out of Free Reserves

In case of inadequate profits in any year, company may declare dividend out of free reserves subject to fulfillment of following conditions-

1. The rate of Dividend declared in the year shall not exceed the average of the rates at which dividend was declared in immediately preceding 3 years. PROVISO- Rule not to apply on company which has not declared any dividend in each of three preceding years.

2. Total amount withdrawn from accumulated profits shall not exceed 1/10th of the sum of paid up share capital and free reserves as appearing in latest audited financial statements.

3. Amount so drawn shall first utilized to set off losses incurred in financial year in which dividend declared and then dividend in respect of equity shares is declared.

4. Balance of reserves after such withdrawal shall not fall below 15% of its paid up share capital as appearing in latest audited financial statements.

Sub Rule (5) of Rule 3 has been omitted vide the Companies (Declaration and Payment of Dividend) Amendment Rules, 2015 Dated 29-05-2015.


Regulations became effective from 1st December, 2015

Regulation 12 a Listed Entity has to make the payment of dividend electronically, if it is not possible to pay dividend electronically, it can make payment through ‘payable-at-Par’ cheques or warrants.  PROVISO- If the amount of dividend exceeds one thousand and five hundred rupees then payable-at-par cheques or warrants are sent by speed post.

Regulation 42

(1) Intimate Record Date to stock exchange for some purposes.
(2) A listed entity shall give notice to stock exchange about record date at least 7 working days advance (excluding date of intimation and record date).
(3)A listed entity shall declare or recommend all dividend or cash bonuses at least 5 working days before the record date (excluding date of intimation and record date).
(4) Time gap of at least 30 days between two record dates.
(5) For securities in physical form, announce date of closure.

Regulation 43

(1)  Disclose dividend on per share basis only.
(2) Not forfeit unclaimed dividend before claim barred by law.


Following Forms are required to be filed –

Sr. No.

Name of the Form

Purpose of the Form

Time Period


Form IEPF-1

Statements of the amounts credited to the Fund.

Within 30 days of submission of Challan.


Form IEPF-2

Statement of unclaimed and unpaid amounts as on the date of AGM.(earlier e-Form 5 INV was filed)

Within a period of ninety (90) days after the holding of AGM.


Form IEPF-3

Statement of shares and unclaimed and unpaid dividend not transferred to IEPF.

Within 30 days from the end of Financial Year.


Form IEPF-4

Statement of shares to be transferred to the IEPF.

After the Expiry of Seven Years From declaration of dividend.


Form IEPF-5

Application to the Authority for claiming unpaid amounts and shares from the IEPF.

The Company shall send a verification report to the Authority along with all the documents submitted by the claimant.

Within a period of fifteen (15) days of receipt of the claim in Form IEPF – 5.


Form IEPF-6

Statement of unclaimed and unpaid amounts due to be transferred to the IEPF in next Financial Year.

Within a period of thirty (30) days of end of financial year.


Published by

kajol babani
Category Corporate Law   Report

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