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Doubt in ca final law - pls reply

poojaty12 (student) (47 Points)

25 April 2016

As per new notification no. GSR 463(E) compliance of rule 3 of declaration and payment of dividend rules is not required for government co. does that mean govt co. can declare dividend out of accumulated reserves without complying wid conditions of rule 3?? or govt co. just cannot declare dividend out of accumulated reserves..??

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rahul (none) (91 Points)
Replied 25 April 2016

Hi,

It means the 100% govt. owned companies cannot declare dividends out of accumulated reserves.

poojaty12 (student) (47 Points)
Replied 25 April 2016

thanks for your reply.. but i think they can declare dividend without complying with other conditions prescribed in rule 3..

rahul (none) (91 Points)
Replied 25 April 2016

Hi,

No they cannot. Here's why :

1) The general provisions in Section 123 state that dividend can be paid out of profits of the current year or of previous years (Read: Accumulated balance in P&L a/c which was not transferred to any reserve).

2) Second Proviso to section 123 states that companies can give dividends out of Free Reserves after following the condition laid down in Rule 3.

The proviso is a relaxation given to companies to declare dividends out of Free Reserves.

Now after the amendment this proviso is not applicable to 100% owned government companies. So the only section governing these companies is the Section 123 itself which does not allow payment out of reserves.

Regards

Rahul

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