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A specific question on section 206

This query is : Resolved 

(1) No dividend shall be paid by a company in respect of any share therein, except -
(a) to the registered holder of such share or to his order or to his bankers ; or....

my question is based on above provision (or to his order) can a registered member issue an order / mandate to a company to pay his share of dividend to another member? Is it legally valid when company does not receive any transfer of instrument as such. Please help ASAP


Department Clarification (Circular dated 15-3-1989 (1989) 65 Comp Case 573 (St))

Attention is invited to section 206 of the Companies Act, 1956, which empowers shareholders to authorise the company to pay dividend, on his behalf, to any person or to his bankers, The Companies may be advises to bring these provisions to the notice of their shareholders so that they could avail of the facility provided under the law.

On the basis of above circular shareholders have right to authorise any person to receive dividend amount on his behalf.

In very olden years, where shares were pledged, the bankers used to take the benefit of this. At paying dividend level, you need not consider this unless it is duly registered with the company.

Mr. Mishra,

Can you please forward me the circular, i am unable to locate that.

So, in short, a memeber can direct a company to pay his share of dividend to another member even without transfer of shares and this is valid as per above circular. Am i right?

You need to register the mandate in the books of the company without which the efforts will go haywire.

Mr. Jogelker will you please explain what you exactly want to mean " register the mandate in the books of the company", i am not very much conversant about the procedure.

Yes, in view of DCA circular dated march 15, 1989 the shareholders have the right to authorise the company to pay dividend to their bankers or to any person on their behalf. Though this may sound a bit illogical since in view of clear mandate of section 206 itself, a company is obliged to pay dividend only to registered shareholders and to none else otherwise it will amount to non payment of dividend. Having said that, in view of department circular dividend can be paid at the instance of registered shareholder even to a non member. You may find the complete text of this circular in Rammaiya's company law.

1. The company should maintain a separate register for such requests. 2.The written requests conforming to KYC norms may be had from such share holder. 3.The specimen signature should be verified. (These are the requirements from AUDITING view point.

Thanks all,
My question to
Mr. Joglekar,

Previously, you stated about to register the mandate now if the company follow the above compliance as you suggested for will be sufficient compliance for the above.

Yes. It will be sifficient compliance.

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