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
******************
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).
