TaxTMI 
TaxTMI 
Dividend
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....ributed amongst the members of the company. The term "dividend" has been inclusively defined in the Companies Act, 1956 ('the Act'), to the effect that it includes interim dividend. The Act neither specifically defines the term dividend nor makes any distinction between interim and final dividend. Scope The principles enunciated in this standard for dividend relate to dividend under the Act and are governed by the provisions of sections 205, 205A, 205B, 205C, 206, 206A, 207 of the Act and also by the Companies (Transfer of Profits to Reserves) Rules, 1975, the Companies (Declaration of Dividend out of Reserves) Rules, 1975 and the Investor Education and Protection Fund (Awareness and Protection of Investors) Rules, 2001. The provisions of section 27 of the Securities Contracts (Regulation) Act, 1956 are also applicable as are, in the case of listed companies, the requirements of the Listing Agreement. Any specific provision relating to dividend in the Income-tax Act, 1961, and any other statute would, in addition, be applicable as set out in that statute/legislation. The principles set out herein relate to both equity as well as preference share capital in accordance with the p....
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....Ascertainment of amount available for payment/distribution as dividend. 1.1 Out of profits 1.1-1 Dividend should be paid out of the profit of the company for the financial year or out of profit(s) for the previous financial year(s) which have not been transferred to reserves, or out of both, only after providing for depreciation for the year and arrears of depreciation, if any. Dividend, being a portion of the profits of the company, is distributable amongst the members of the company in accordance with the provisions of the Act. The Act requires a company to prepare a profit and loss account which should give a true and fair view of the profit or loss of the company for a financial year. The Act does not define the word 'profit' or the expression 'true and fair'. These words and expressions should, therefore, be understood in their natural and proper sense. This would imply that the profit and loss account should be prepared and presented in conformity with the requirements set out in the Act and the generally accepted principles of accounting, which should be consistently applied. In order to arrive at a true and fair view and to ascertain such profit, depreciation should be ....
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.... Rules, 1975 are applicable. However, the company would not, in such a case, be required to comply with the Companies (Declaration of Dividend out of Reserves) Rules, 1975. The Companies (Transfer of Profits to Reserves) Rules, 1975 only apply to equity dividend and to that portion of dividend relating to participating preference shares which is in excess of the fixed rate of preference dividend. 1.1-5 Interim dividend, if declared, is payable out of estimated profit for the period for which interim dividend is to be declared, after taking into account depreciation for the full year and arrears of depreciation, dividend at the contracted rate on preference shares, if any, appropriations and transfers to statutory reserves, taxation, and the provisions of the Companies (Transfer of Profits to Reserves) Rules, 1975. Interim dividend may be declared after the Board has considered the interim financial statements for the period for which interim dividend is to be declared and is satisfied that the financial position of the company justifies and can support such declaration. The interim financial statements so prepared should take into account depreciation for the full year, taxation....
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....t. Hence, any company, which draws from its reserves to pay dividend, will not be required to make any appropriation to reserves in terms of the Companies (Transfer of Profits to Reserves) Rules, 1975 since the dividend declared by it from the reserves cannot exceed ten per cent. 1.2-2 Interim dividend should not be declared out of reserves. While final dividend may be paid out of free reserves, no interim dividend should be paid, in the event of a loss or inadequacy of profits, by transfers out of any reserves. 2. Declaration of dividend 2.1 Dividend should be declared only on the recommendation of the Board, made at a meeting of the Board. The recommendation for declaration of dividend should not be made by a committee of the Board nor by way of a resolution passed by circulation. Unless the dividend has been recommended by the Board, members in general meeting cannot on their own declare any dividend. Where a company has an audit committee, this committee should consider the financial statements before submission to the Board. Dividend should be recommended by the Board after consideration and approval of the financial statements. All requisite approvals should be obtained....
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....ct of shares held in physical form, to those shareholders whose names appear on the company's register of members after giving effect to all valid share transfers in physical form lodged with the company before the date of book closure or, in the case of interim dividend, on the record date; and (iii) in respect of share warrants, to the holders of such warrants. 3.2 Preference shareholders should be paid dividend before dividend is paid to the equity shareholders of the company. Preference shares carry a preferential right as to dividend in accordance with the terms of issue and the articles. However, this right is subject to the availability of distributable profits. If there are two or more classes of preference shares, the holders of the class which has priority are entitled to their preference dividend before any dividend is paid in respect of the other class, if the terms of issue so provide. If the terms of issue are silent, dividend should be distributed on pro rata basis. In the case of interim dividend, while preference shareholders need not necessarily be paid dividend before interim dividend is paid to equity shareholders, the Board should set aside such sum as woul....
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....d payable in cash may be paid by cheque or warrant or demand draft or pay order or may be credited to the bank account of the member in terms of a mandate given by the member. The cheque or warrant or demand draft or pay order should be sent to the registered address of the member and, in the case of joint holders, to the registered address of the person named first in the register of members or to such person or to such address as the member or the joint holders have directed, in writing. 5.3 Initial validity of the dividend warrant should be for three months. A cheque or warrant for payment of dividend should be valid for three months from the date thereof and, where such cheque or warrant remains unpaid after this initial period of validity, it should be revalidated for not more than three months or a fresh instrument should be issued which should have a validity of three months. The company should revalidate the dividend warrant or issue a fresh dividend warrant or a demand draft or pay order in lieu thereof, within fifteen days of the receipt of a request for revalidation. Particulars of every revalidated dividend warrant should be entered in a register of revalidated div....
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....of listed companies, calls in arrears or any other sum due from a member in the capacity of a member may be adjusted against the dividend payable to him after giving such notice, as may be required. In the case of other companies, unless the articles provide otherwise, any other sums due from a member, in a capacity other than as a member, may also be adjusted against the dividend payable to him. Standards 5.1 to 5.7 shall also apply to interim dividend. 6. Unpaid Dividend 6.1 The amount of dividend which remains unpaid or unclaimed after thirty days from the date of declaration should be transferred to a special dividend account, to be called 'unpaid dividend account' of the company, within seven days from the date of expiry of the thirty days period provided for payment of dividend. The company should maintain the details of unpaid or unclaimed dividend and reconcile the amounts thereof with the concerned bankers, periodically. 6.2 Any amount in the unpaid dividend account of the company which remains unclaimed and unpaid for a period of seven years from the date of transfer of such amount to the unpaid dividend account should be transferred to the Investor Education and Pro....