Declaration of Dividend

8.1 Sub-section (3) of Section 123 of the Act, allows the Board of Directors to declare interim dividend during any financial year out of the surplus in the profit and loss account, and out of the profits of the financial year in which such dividend is sought to be declared. The sub-section could be interpreted to mean that the interim dividend for a particular financial year could only be declared during that particular financial year period; restricting the ability of companies to declare interim dividend after the close of the financial year but before the Annual General Meeting (AGM). Such an interpretation could not have been the intent of the Act and would cause difficulties for companies, as declaration of interim dividend after the close of financial year is an accepted practice.

8.2 Further, the use of the word “and” after the words “surplus in the profit and loss account”, and before the words “out of the profits of the financial year” in sub-section (3) of Section 123 appears at disharmony with the provisions of sub-section (1)(a), which provides for the declaration of dividend out of the profits of the company for that financial year, or the profits of the company from any previous financial year(s) (subject to deduction of depreciation and other conditions), or both the amounts. The Committee also felt that, as a measure of good corporate governance, a company should not declare interim dividend out of the projected profits for the full year.

8.3 The Committee, after examining the above issues, recommended that the provisions of section 123(3) be amended in such a way as to allow declaration of interim dividend from out of the profits of the current financial year, generated till the date of declaration, including brought forward surplus in the Profit & Loss Account, and the same could be declared anytime up to convening of AGM for the said financial year.

Unpaid Dividend Account – transfer of securities to IEPF in certain cases

8.4 The suggestion made by stakeholders to omit those provisions of Section 124(6), that required a transfer of all shares in respect of which dividend is not claimed or paid for seven consecutive years to IEPF, was rejected by the Committee. The Committee felt that since the provisions allowed the return of securities to the claimants after these were transferred to IEPF; the provisions could be retained as provided.

Interim dividend declaration: allow payout from current year earned profits and brought forward surplus up to the AGM. Interim dividend may be declared from profits generated in the current financial year up to the date of declaration and from brought forward surplus, and may be declared anytime up to the convening of the Annual General Meeting; declaration from projected full year profits is disfavoured. The transfer requirement for securities linked to unclaimed or unpaid dividends to the investor education and protection fund is retained because transferred securities can be returned to claimants.