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CA Inter Revision | Corporate And Other Laws | Declaration And Payment Of Dividend | Hindi + English

J. K. Shah Classes・37 minutes read

Chapter 8 of the Companies Act 2013 covers the Declaration of Dividend, Unpaid Dividend Account (UDA), and rules for dividend distribution, including penalties for delays and conditions for payment. It outlines the requirements and procedures for paying dividends, including the use of free reserves, dividend calculations, and penalties for late payments.

Insights

  • Dividends must be paid out of free reserves, excluding specific types of reserves like Revaluation Reserve and purpose-specific reserves, with strict rules on profit calculations and methods of payment, ensuring transparency and legality in the distribution of profits to shareholders.
  • Non-compliance with dividend payment regulations can result in significant penalties, including fines for both companies and officers, interest payments on delayed dividends, and potential legal consequences, highlighting the importance of adhering to the Companies Act 2013 guidelines to avoid financial and reputational risks.

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Recent questions

  • What is the definition of dividend?

    Profit distribution among shareholders.

  • How are dividends paid to shareholders?

    Through cash, cheque, warrant, or electronic mode.

  • What are the conditions for paying dividends in the absence of profits?

    Utilizing past year profits, setting off losses, maintaining minimum reserves.

  • What are the penalties for delayed dividend payments?

    Interest payments, possible jail time for directors.

  • What happens to unclaimed dividends?

    Deposited in Unpaid Dividend Account (UDA), then to Investor Education Protection Fund (IEPF).

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Summary

00:00

"Companies Act 2013: Chapter 8 Dividend Rules"

  • Companies Law revision focusing on Companies Act 2013, specifically Chapter 8.
  • Chapter 8 can be completed in 25 minutes with compact notes.
  • Sections to study in Chapter 8: 123 to 127, covering Declaration of Dividend, Unpaid Dividend Account (Uda), IEPF, and penalties for delayed dividend payment.
  • Companies Declaration and Payment of Dividend Rules 2014 to be studied.
  • Institute of Company Secretaries of India issues secretarial standards, including Secretary Standard Three on dividend.
  • Dividend defined as profit distribution among shareholders, with Interim and Final Dividend distinctions.
  • Final Dividend declared in AGM, Interim Dividend between AGMs, with Board of Directors and shareholders' roles.
  • Final Dividend declared once a year, Interim Dividend multiple times, with flexibility in declaration.
  • Adjustments required for dividend distribution from profits, including depreciation, reserve transfers, past losses, and unabsorbed depreciation.
  • Conditions for paying dividends in absence of profits, utilizing past year profits, setting off losses, and maintaining minimum reserves.

11:11

Guidelines for Dividend Payment in Companies

  • Dividend should only be given out of free reserves, which include General Reserves, PNL, and Dividend Equalization Reserve, excluding Revaluation Reserve and purpose-specific reserves.
  • Dividend must be declared based on profit calculations, not involving real estate or asset revaluation.
  • Dividend Equalization Reserve is used for paying dividends, while reserves like Revaluation Reserve, CRR, DRR, Security Premium, Capital Reserve, and purpose-specific reserves cannot be used for dividends.
  • Dividend should be paid in cash through cheque, warrant, or electronic mode to shareholders or their bank accounts.
  • Dividend can only be paid to shareholders listed in the company's register of members on the Record Date.
  • Companies cannot declare dividends if they have defaulted on deposits or interest payments according to sections 73 or 74.
  • Interim dividends can be declared by the Board of Directors at any time during or after the financial year till the AGM, using profits from the current year or previous quarters.
  • The maximum rate for dividend payment is based on the average of the last 3 years' profits, with different rules for final and interim dividends.
  • Dividend must be paid within 30 days of declaration, with penalties for delays, including interest payments and possible jail time for directors.
  • Exceptions to penalties for late dividend payments include cases where the delay is due to legal requirements, shareholder directions that are not feasible, lawful dividend adjustments, or circumstances beyond the company's control.

21:22

"Nidhi Company Dividend Process and Regulations"

  • Nidhi Company will not deposit money in shareholders' accounts but will publish in a local newspaper and post on the company notice board about dividend declaration.
  • Shareholders of Nidhi Company will receive dividends, and the company will post notices for dividend payments.
  • If a company fails to pay dividends, it faces a fine of ₹1 lakh per day, up to ₹10 lakh, while officers face a fine of ₹25,000 per day, up to ₹2 lakh.
  • Unpaid dividends are deposited in the Unpaid Dividend Account (UDA) within seven days, failing which the company pays interest at 12%.
  • After seven years, unclaimed dividends and shares go to the Investor Education Protection Fund (IPF).
  • IPF refunds unclaimed amounts, promotes investor education, and covers legal expenses, with CAG auditing its accounts.
  • IPF receives funds from various sources, including donations, and its audit report is submitted to the Central Government and Parliament.
  • Shares in physical form require an instrument of transfer, and until the transfer is registered, corporate benefits like dividends and bonus shares are on hold.
  • If the transferor consents, dividends can be transferred to the transferee, avoiding hold on corporate benefits.
  • Chapter 126 concludes the process, emphasizing the importance of understanding the chapter for exams, with a weightage of 2-10 marks.
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