Whether opening of dividend account is required

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SREE VIDHYA RAJU (Querist)
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09 July 2009 Under Section 205(1A) the dividend shall be deposited into a separate bank account within 5 days of declaration. In case of a wholly owned subsidiary which has got one corporate shareholder with 6 other nominees, in case this subsidiary company decided to pay the entire dividend in cash i.e. DD OR ECS to all these shareholders, is it not sufficient compliance with Section 205(1A). Is it necessary to open a bank account, deposit the dividend within 5 days and then only distribute to the shareholders. If any Company decides to directly credit the dividend proceeds into the shareholders account within 4 days from the date of declaration, is there any obligation under Section 205(1A), because in case the dividend is already paid within 5 days from the date of declaration, there is no requirement to deposit anything further into the bank account. pl.clarify.

Ankur Garg

Ankur Garg (Expert)
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09 July 2009 Hi,

Kindly appreciate the language used by Section 205(1A) is like this "....and the amount of dividend including interim div shall be deposited in a separate bank account......"

In view of the word "shall be deposited" we may say that it is necessary to open a bank account, deposit the dividend within 5 days and then only distribute to the shareholders.

Best Regards