Dividend related very confusing query

Hi,

Only following provisions related to dividend are exempted for a govt company

1. Second Proviso to Section 123(1) of the Companies Act, 2013

Exemption 
The provision that in case owing to inadequacy or absence of profits in any financial year, any company proposes to declare dividend out of the accumulated profits earned by it in previous years and transferred by the company to the reserves, such declaration of dividend shall not be made except in accordance with such rules as may be prescribed in this behalf , shall not apply to a Government Company in which the entire paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments.

2. Section 123(4) of the Companies Act, 2013

Exemption 
The requirement related to depositing dividend including interim dividend in a separate bank account shall not apply to a Government Company in which the entire paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments or by one or more Government Company.

Please refer the attached notification for reference

Hi arjun,

Thanks for ur reply. But the doubt is still there.

as i already knew about this amendment..but my confusion is regarding the interpretation of second proviso..what does this second proviso want to say?

Case 1) in case of inadequate profits in current year..can govt co pay dividend from past year profits after following the rules?

Case 2) in case of inadequate profits in current year..govt company can never pay dividend from past profits?

Some are saying that case 1 is correct..some are saying case 2.

Hi Priya,

Please read the exemption no. 1 slowly and carefully.

What the exemption says that govt company can declare dividend if there is absence or inadequate profits in the current year out of reserves created of accumulated profits of previous years. No need to comply with Rule 3 of Companies (Declaration and Payment of Dividend) Rules, 2014.

Answer to your case no.1 is yes, provided which the entire paid up share capital of govt company is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments.(Read exemption)

Answer to your case no. 2 is no. As per the exemption notification the govt comp can pay dividend if due to absence of profits in current year dividend can be paid out of reserves created out of accumulated profits of previous year. ( Read exemption) Also the entire paid up share capital of govt company is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments.

Hope the matter is clear to you.

Hi arjun,

I totally understand your view. Infact my view is also the same as yours.

but in icai revision test paper..there is a question in which icai has taken a view that govt company can never pay dividend out of past profits. I ll upload the relevant supportings.

https://resource.cdn.icai.org/41399bos31122cp4.pdf

download doc from this link..que 1(a) on page 12 and answer of the same on page 19

Originally posted by : Priya
	https://resource.cdn.icai.org/41399bos31122cp4.pdfdownload doc from this link..que 1(a) on page 12 and answer of the same on page 19

I think there is some mistake in the suggested answer 1(a)(i) given by ICAI. You may consult with CA faculties for verification. I stand with my view . Govt comps can pay dividends without complying with Rule 3.

However Answer 1(a)(ii) is absolutely correct.