Tuesday, 2 January 2018

HIGHLIGHTS ON SECRETARIAL STANDARDS ON DIVIDEND [SS-3]

HIGHLIGHTS ON SECRETARIAL STANDARDS ON DIVIDEND [SS-3]
In this piece of writing, we will cover the topic “Secretarial Standards on Dividend [SS-3][1] issued by issued by the Council of the Institute of Company Secretaries of India. Before we carry detailed discussion of context of [SS-3], please note the highlights of these standards so issued as stated below:

*      To be effective from 01st January, 2018.
*      Adherence to these standards is “Recommendatory” not “Mandatory”.
*      This Standard prescribes a set of principles in relation to the declaration and payment of Dividend and matters related thereto
*      Standards are in conformity to:
                                  i.            the provisions of the Securities Contracts (Regulation) Act, 1956 and
                                ii.            the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 are applicable to listed companies
                              iii.            Income Tax Provisions 1961
*      Non applicability of these standards:  (1) company limited by guarantee not having share capital and (2) does not deal with Dividend, if any declared by companies under liquidation.
*      Please Note: The companies having licence under Section 8 of the Act are prohibited by their constitution from paying any dividend to its members. They apply the profits in promoting the objects of the company
*      For the purposes of this Standard, capitalization of profits in the form of bonus shares is not Dividend.

DIVIDEND:
A dividend is a payment made by a company to its shareholders, usually as a distribution of profits. When a company earns a profit or surplus, the company is able to re-invest the profit in the business (called retained earnings) and pay a proportion of the profit as a dividend to shareholders.
The term ‘dividend’ has been defined under Section 2(35) of the Companies Act, 2013. The term “Dividend” includes any interim dividend. According to the generally accepted definition, “dividend” means the profit of a company, which is not retained in the business and is distributed among the shareholders in proportion to the amount paid-up on the shares held by them. Dividends are usually payable for a financial year after the final accounts are ready and the amount of distributed profits is available.

Following terms are defined, which are used in the standards issued:
Final Dividend” means the Dividend recommended by the Board of Directors and declared by the Members at an Annual General Meeting.

Interim Dividend” means the Dividend declared by the Board of Directors.

Please note: [Dividend for a financial year of the company (which is called ‘final dividend’) are payable only if it is declared by the company at its annual general meeting on the recommendation of the Board of directors. This constitutes an item of ordinary business to be transacted at every annual general meeting

Sometimes dividends are also paid by the Board of directors between two annual general meetings without declaring them at an annual general meeting (which is called ‘interim dividend’). However, as a measure of good practice, payment of Interim Dividend should be recorded at the Annual General Meeting.

Declaration of Dividend:
*      Dividend shall be declared only on the recommendation of the Board, made at a meeting of the Board.
*      Where a company has an Audit Committee, this Committee shall consider the annual financial statements before submission to the Board
*      Dividend shall be declared only at an Annual General Meeting.





DECLARATION OF DIVIDEND OUT OF PROFITS: These standard is articulated in line with the provisions of section 123(1) (a) of the Companies Act, 2013 which provides for following thing;
*      Dividend to be declared out of the profits of the company for that year or out of the profits of the company for any previous financial.
*      After providing for depreciation in accordance with the provisions of Schedule II to the Act and remaining undistributed, or out of both.
*      previous losses and depreciation not provided in previous year are set off against profit of the company of the current year the loss or depreciation

DECLARATION OF DIVIDEND OUT OF RESERVES: In a year in which the profits are inadequate or there are no profits, the company may declare Dividend out of Free Reserves subject to the fulfilment of the conditions as prescribed in Rule 3 of Companies (Declaration and Payment of Dividend) Rules, 2014.
Please note: No Interim Dividend is declared in case the profits are inadequate or there are no profits. Only “final dividend”, recommended by board and declared in Annual General Meeting.

DECLARATION OF DIVIDEND: Out of the money provided by Central or State Government for payment of dividend in pursuance of guarantee given by that, if any

DIVIDEND NOT TO BE DECLARALED FROM FOLLOWING SOURCES:           
*      Securities Premium Account or
*      the Capital Redemption Reserve or
*      Revaluation Reserve or Amalgamation Reserve or
*      out of profits on re-issue of forfeited shares or
*      out of profits earned prior to incorporation of the company;

RESTRICTIONS ON DECLARATION OF DIVIDEND:
*      it has defaulted in redemption of debentures or payment of interest thereon or creation of debenture redemption reserve,
*      it has defaulted in redemption of preference shares or creation of capital redemption reserve,
*      it has defaulted in payment of dividend declared in the current or previous financial year(s), or
*      it has defaulted in repayment of any term loan to a bank or financial institution or interest thereon, till such time the default is subsisting

PAYMENT & MANNER OF PAYMENT OF DIVIDEND:
*      Dividend shall be deposited in a separate bank account within 5 days from the date of declaration. [Section 123(4)]
*      To be paid within 30 days of declaration. (includes holidays)
*      Amount deposited to be used only for said purpose.
Manner: In line with section 123 (5): Dividend shall be paid in cash and not in kind
*      In cash
*      In Cheque
*      In warrant
[The cheque or warrant shall be sent to the registered address of the Member and, in the case of joint holders, to the registered address of the member 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

In case of payment of dividend through warrant or cheque payable at par, if the amount of dividend exceeds one thousand and five hundred rupees, the company shall ensure to despatch such dividend warrant or cheque either by speed post or registered post to the concerned Member at his registered address

A cheque or warrant for payment of Dividend shall be valid for a period of three months from the date of issue

If remain unpaid, a fresh instrument shall be issued in lieu thereof, within fifteen days of the receipt of a valid request in this regard for again next three month.

Duplicate Cheque or warrant In case of defaced, torn or decrepit to be issued only after obtaining requisite indemnity/ declaration from the concerned member and after ascertaining the encashment status of the original Dividend cheque or warrant.

Particulars of every fresh/ duplicate cheque or warrant issued by the company shall be entered in a Register of Dividend Warrants.

The Dividend cheque or warrant shall be accompanied by a statement in writing showing required prescribed details.

*      Any Electronic Mode approved by RBI:[ Where Dividend is remitted through electronic mode, , the company shall send to the member, a statement in writing showing the amount of Dividend paid]

ENTITLEMENT TO DIVIDEND
*      Dividend to be paid only to the registered holders of shares or to their order (shareholder can give director to the Company to pay his dividend to any third person) or to their bankers.

*      If shares are held in electronic form then it payable to those Members whose names appear as beneficial owners in the statement and if shares are held in physical form to those Members whose names appear in the company’s Register of Members after giving effect to all valid share transfers in physical form lodged with the company and in respect of share warrants, to the holders of such warrants
*      It is paid on equity as well as preference share Capital of company.

*      Dividend on equity shares shall be paid in accordance with the rights of the respective classes, if any, of such shares
*      Where a company has issued equity shares with differential rights as to voting only, no differentiation shall be made in the declaration of Interim Dividend on such shares

*      Preference shares carry a preferential right as to Dividend in accordance with the terms of issue. However, this right is subject to the availability of distributable profits.
*      If there are two or more classes of preference shares,  dividend will be distributed in priority basis or pro-rata basis as the case may be
*      Preference shares may be cumulative or non-cumulative, therefore Arrears of Dividend on cumulative preference shares shall be paid before payment of any Dividend on equity share

TREATMENT OF UNPAID DIVIDEND:
The roots of this concept, which is arising from Section 124 of the Companies Act, 2013: “Unpaid Dividend” which provides for transfer of unpaid/unclaimed dividend i.e dividend which is not paid or claimed within 30 days from its date of declaration, then the company within 7 days shall transfer such amount to a special account namely “Unpaid Dividend Account” which will be opened by Company in a schedule bank as per section 124(1) of the Act, 2013.
Within 90 days of transferring such amount to “Unpaid Dividend Account”, statement containing details of Members will be prepared.
Such statement shall be uploaded on the website of the company, if any, and also on the website specified by the Central Government for this purpose.
Such statement shall remain on the website(s) till such time the unpaid or unclaimed Dividend is transferred to the Fund.
Transfer to Investor Education and Provident Fund:
Further any amount transferred to “Unpaid Dividend Account” remains unpaid or unclaimed for a period of 7 years from date of transfer, and then as per section 124 (5) same shall be transferred to ‘Investor Education and Provident Fund”, a fund established by Central Government within thirty days from the expiry of seven years and ensure compliance therein. Further any interest earned on the Unpaid Dividend Account shall also be transferred to the Investor Education and Protection Fund
Before transferring such amount: “The company shall intimate the concerned Members individually of the amount of Dividend remaining unclaimed or unpaid which is liable to be transferred to the Fund and advise the Members to claim such amount of Dividend from the company before such transfer”
 At last, pursuant to the provisions of section 124 (6) of the Companies Act, 2013 read with the IEPF Rules, 2016 as amended from time to time, the Company is mandated to transfer all the shares in the name of Investor Education and Provident Fund in respect of which dividends .have not been paid or claimed for seven consecutive years or more. (Refer another article on link provided for detailed process and recent amendments related thereto.)https://anjalics.blogspot.com/2018/01/transfer-of-shares-to-iepf-authority.html



REVOCATION:
Dividend, once declared, becomes a debt and shall not be revoked, mandatory to be paid.

DISCLOSURES OF DIVIDEND DECLARED:
*      Balance Sheet: Notes to Accounts and under Current liabilities Head
*      Board Report: The amount of interim dividend, if any, paid during the financial year and final Dividend recommended by the Board of directors. [Section 134(3)(k)]
*      Annual Report: (i) disclose the total amount lying in the Unpaid Dividend Account of the company in respect of the last seven years. (ii) The amount of Dividend, if any, transferred by the company to the Investor Education and Protection Fund during the year shall also be disclosed

PRESERVATION OF RECORDS:
*      Dividend cheques or warrants returned by the Bank, after payment thereof, and the Dividend Registers shall be preserved by the company for a period of eight years.
*      Where the company has given an undertaking to the Bank for preservation or safe keeping of paid Dividend cheques or warrants for a specified period, the said instruments shall be preserved for such specified period or eight years from the date of the instrument, whichever is longer.
*      Records to be destroyed after approval of Board or in accordance with policy.

SALIENT FEATURES OF THESE STANDARDS (FAQs)
Q1. How dividend will be apportioned?
A1. Dividend shall be paid in proportion to the amount paid-up on the share and for the portion of the period of the financial year in respect of which it is paid, unless articles provide. It means Old shares will be entitled for dividend for full year, while new shares will be entitled to dividend only from the date of allotment on pro rate basis.
Q2. Does dividend bear interest against company?
A2. No dividend shall bear interest against the company except in case of default in payment of dividend or despatch of dividend warrant/cheque within the prescribed period
However, default will deem to be “No default” in following cases;
*      By operation of law
*      Dividend in question is in dispute
*      As per directions given by shareholders to company
*      Set off dividend against the liability due from shareholder
*      for any other reason, the failure to pay the Dividend or to post the cheque or warrant within the prescribed period was not due to any default on the part of the company
Q3. Whether rate dividend can be increase by the shareholders?
A3.Members may declare a lower rate of Dividend than the rate recommended by the Board but have no power to increase the amount or rate of Dividend recommended by the Board.
However, The Members may also decide not to declare the Dividend recommended by the Board.
In addition to the above, a Listed Company shall ensure compliance with the requirements

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DISCLAIMER: The entire contents of this document have been developed on the basis of relevant information and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors expressly disclaim all or any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document. READER SHOULD SEEK APPROPRIATE COUNSEL FOR YOUR OWN SITUATION. AUTHOR SHALL NOT BE HELD LIABLE FOR ANY OF THE CONSEQUENCES DIRECTLY OR INDIRECTLY.
(Author-CS Anjali Gorsia, Company Secretary from Nagpur (Maharashtra) and can be contacted at csanjali.gorsia@gmail.com).

Monday, 1 January 2018

TRANSFER OF SHARES TO IEPF AUTHORITY & RECENT AMENDMENTS

TRANSFER OF SHARES TO IEPF AUTHORITY & RECENT AMENDMENTS
In this piece of writing, we will discuss the concept and procedure for transfer of shares by the Company to “Investor Education and Provident Fund”, a fund established by Central Government under section 125 of the Companies act, 2013 for specific purpose and recent amendments by Central Government in Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (hereinafter further referred as IEPF Rules, 2016) issued by MCA via Notification[1] dated 13th October, 2017 and General circular[2] No 12/2017 dated October 16, 2017.
Prior to this, Lets discuss about the roots of this concept, which is arising from Section 124 of the Companies Act, 2013: “Unpaid Dividend” which provides        for transfer of unpaid/unclaimed dividend i.e dividend which is not paid or claimed within 30 days from its date of declaration, then the company within 7 days shall transfer such amount to a special account namely “Unpaid Dividend Account” which will be opened by Company in a schedule bank as per section 124(1) of the Act, 2013.
Further any amount transferred to “Unpaid Dividend Account” remains unpaid or unclaimed for a period of 7 years from date of transfer, and then as per section 124 (5) same shall be transferred to ‘Investor Education and Provident Fund”, a fund established by Central Government.
At last, pursuant to the provisions of section 124 (6) of the Companies Act, 2013 read with the IEPF Rules, 2016 as amended from time to time, the Company is mandated to transfer all the shares in the name of Investor Education and Provident Fund in respect of which dividends have not been paid or claimed for seven consecutive years or more.
The aforesaid procedure for transfer of shares by the Company to “Investor Education and Provident Fund is explained below in diagrammatic format for better understanding:

Please Note: For the removal of doubts it is hereby clarified that in case any dividend is paid or claimed for any year during the said period of seven consecutive years, the share shall not be transferred to Investor Education and Protection Fund as per sub section 124 (6).
QuestionWhether a shareholder, whose shares have been transferred to IEPF, can claim back shares and whether he can attend general meeting and vote thereat?

Answer:  Yes, a shareholder (even their legal heirs & representative) can claim their shares transferred to IEPF by making an application in Form IEPF-5 to IEPF authority.
(Refer first proviso of sub section (6) of section 124 of the Act, read with Rule 7 of IEPF Rules, 2017)

As per MCA vide notification, following amendments have been carried in Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016:
in sub-rule (1) of Rule 6
for the second proviso, the following proviso shall be substituted, namely:

“Provided further that in cases where the period of seven years provided under sub-section (5) of section 124 has been completed or being completed during the period from 7th September, 2016 to 31st October, 2017, the due date of transfer of such shares shall be deemed to be 31st October, 2017.”;
in sub-rule (1) of Rule 6

after the second proviso, the following proviso shall be inserted, namely:—

“Provided further that transfer of shares by the companies to the Fund shall be deemed to be transmission of shares and the procedure to be followed for transmission of shares shall be followed by the companies while transferring the shares to the fund.”

It is to be treated as “Deemed Transmission”
in sub-rule(3) of Rule 6

for clause (d), the following clause shall be substituted, namely;—

‘(d) For the purposes of effecting the transfer shares held in physical form-
(i)                the Company Secretary or the person authorised by the Board shall make an application, on behalf of the concerned shareholder, to the company, for issue of a new share certificate;
(ii)              on receipt of the application under clause (a), a new share certificate for each such shareholder shall be issued and it shall be stated on the face of the certificate that “Issued in lieu of share certificate No..... for the purpose of transfer to IEPF” and the same be recorded in the register maintained for the purpose;
(iii)            particulars of every share certificate shall be in Form No. SH-1 as specified in the Companies (Share Capital and Debentures) Rules, 2014;
(iv)             after issue of a new share certificate, the company shall inform the depository by way of corporate action to convert the share certificates into DEMAT form and transfer in favour of the Authority.’;
after sub-rule (12) of Rule 6
the following sub-rules shall be inserted, namely

“(13) Any amount required to be credited by the companies to the Fund as provided under sub-rules (10), (11) and sub-rule (12) shall be remitted into the specified account of the IEPF Authority maintained in the Punjab National Bank.
(14) Authority shall furnish its report to the Central Government as and when noncompliance of the rules by companies came to its knowledge.”.
after sub-rule (2) of Rule 7
the following sub-rule shall be inserted, namely:—

“(2A) Every company which has deposited the amount to the Fund shall nominate a Nodal Officer for the purpose of coordination with IEPF Authority and communicate the contact details of the Nodal Officer duly indicating his or her designation, postal address, telephone and mobile number and company authorized e-mail ID to the IEPF Authority, within fifteen days from the date of publication of these rules and the company shall display the name of Nodal Officer and his e-mail ID on its website.”; 
after sub-rule (3) of Rule 7
the following proviso shall be inserted, namely:—

“Provided that in case of non-receipt of documents by the Authority after the expiry of ninety days from the date of filing of Form IEPF-5, the Authority may reject Form IEPF-5, after giving an opportunity to the claimant to furnish response within a period of thirty days.”;
after  Rule 7
the following proviso shall be inserted, namely:—

“Provided that in case of non-receipt of rectified documents by the Authority after the expiry of ninety days from the date of such communication, the Authority may reject Form IEPF-5, after giving an opportunity to the claimant to furnish response within a period of thirty days.”.

PROCEDURE FOR TRANSFER OF SHARES BY THE COMPANY TO IEPF AUTHORITY:
1.                   Transfer of Shares by Company to IEPF Authority in DEMAT Account, within 30 days of completion of 7 years of the  date of Dividend transferred to the “Unpaid Dividend Account’.

2.                   Please note that:
a)      Shares will not be transferred, if beneficial owner has encashed any dividend  warrant during the last 7 years.
b)     the period of seven years provided under sub-section (5) of section 124 has been completed or being completed during the period from 7th September, 2016 to 31st October, 2017, the due date of transfer of such shares shall be deemed to be 31st October, 2017.”; it means that shares must be transferred within 30 days i.e till 30th November, 2017.

3.                   Board Resolution for authorising Company Secretary or any person for giving effect to necessary acts required to be done for such purpose.

4.                   Concerned Shareholder to be informed of such transfer to IEPF at 3 months before the due date of transfer of shares.

5.                   Newspaper advertisement to be given, prescribing the names of shareholders whose shares are proposed to be transferred and their complete details pertaining to shares along with websites address of company.

6.                   For effecting the transfer of shares:

a)      If in DEMAT form- corporate actions form to be filed with depository
b)     Where shares are in physical form:
                                                          i.            the Company Secretary or the person authorised by the Board shall make an application, on behalf of the concerned shareholder, to the company, for issue of a new share certificate;
                                                        ii.            a new share certificate for each such shareholder shall be issued and it shall be stated on the face of the certificate that “Issued in lieu of share certificate No..... for the purpose of transfer to IEPF” and the same be recorded in the register maintained for the purpose.
                                                      iii.            after issue of a new share certificate, the company shall inform the depository by way of corporate action to convert the share certificates into DEMAT form and transfer in favour of the Authority.
c)      Company shall send a statement to the authority in IEPF -4 Form containing details of such transfer while affecting such transfer.




SAMPLE NOTICE GIVING EFFECT TO SUCH TRANSFER
NOTICE
Sub: Transfer of Shares of the Company to DEMAT Account of IEPF Authority.

Pursuant to the provisions of section 124 (6) of the Companies Act, 2013 read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 as amended from time to time, the Company is mandated to transfer all the shares in the name of Investor Education and Provident Fund in respect of which dividends have not been paid or claimed for seven consecutive years or more.

In compliance with said Rules, the company has communicated individually to the concerned  shareholders whose shares are liable to be transferred to the DEMAT account of IEPF Authority and also published in the Notices in the ___________________(English Newspaper) and ______________(Vernacular language newspaper) respectively to the effect. The company has also uploaded on websites www.__________________________under investors section, the details of shareholders whose shares are liable to be transferred to IEPF Authority. The Company shall take necessary steps to transfer the concerned shares held by such shareholders in physical or DEMAT form to the DEMAT account to the IEPF Authority within 30 days from the due date i.e 30th November, 2017 in accordance with notification dated 13th October, 2017  and General circular No 12/2017 dated October 16, 2017 issued by MCA.

The shareholder may please note that no claim shall lie in against the company in respect of the shares and dividends thereof credited to the Account of IEPF Authority. On transfer of the dividends and shares to IEPF Authority, the shareholder may however claim the same  y making an application IEPF Authority in Form IEPF-5 as per the procedure prescribed in the Rules.

In case the the shareholders and queries on the subject Matter, they may contact the company Registrar and Transfer Agent_______________________________________________________________________________________________________________(at given details)

For_______________________________
(Company Secretary/Authorised Person)
Date :
Place:
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DISCLAIMER: The entire contents of this document have been developed on the basis of relevant information and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors expressly disclaim all or any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document. READER SHOULD SEEK APPROPRIATE COUNSEL FOR YOUR OWN SITUATION. AUTHOR SHALL NOT BE HELD LIABLE FOR ANY OF THE CONSEQUENCES DIRECTLY OR INDIRECTLY.
(Author-CS Anjali Gorsia, Company Secretary from Nagpur (Maharashtra) and can be contacted at csanjali.gorsia@gmail.com)

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