Preference Share dividend Deadline

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The entity has raised preference share capital during the previous year and the nature of the same is 1% Redeemable, Cumulative and Covertible Preference Shares. Hence the dividend has been provided during the previous year in the books but unpaid during the current year. The provision for the current year has also been accrued. With reference to Company Law, Sec 205 restricts to equity shares only and does not mention about preference shares. I require someone to tell me as to whether there is any literature to support as to when the preference dividend is payable within a due date / is it statutorily mandated pay within a stipulated period? 

 

Replies (2)

Dear Mr. Hariram Sir,

Explanation given in the book "commentary on Company Law" by Sanjiv  Agarwal mentions in its expl. for sec. 205 that no shareholder has right to claim against the Company for distribution of its profits as dividend. The shareholder therefore ,can not compel the Company by any process of law to declare dividend (ref. to case law:  C.W. Spencer v.ITO (1957)27 Comp.cas. 15, 25 Mad.)

However it must be noted that  dividend is not debt until it is declared by the Company hence Preference dividend becomes statutory liability if directors recommended dividend in the AGM/EGM and shareholders approved it through resolution, once resolution for this matter is passed you have to pay it within 30 days.

 hence as per my knowledge if you have provided it in your balance sheet but have not declared and approved through AGM/ EGM then it may not create it as a liability .

As per my knowledge, section 205 do not provide for any penal action for non- compliance .

Regards ,

MS. Gargi

 

Dear Gargi Sir,

Thanks a ton for the explanation.

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