Unit V-Dividend

Dr. Shinu Vig

Meaning
• Under section 2(35) of the Companies Act, 2013 defines the dividend
as the specific portion of the profit given to the shareholders from the
net profit of the company.
• For the distribution of dividend net profit is legally available at the
company’s account.
• Divided is further described as a return on the share capital
subscribed for and paid to its shareholders by a company.
• Interim dividend is also included.
• The term dividend is derived from the Latin word “Dividendum”
which means anything which is to be divided.
The process of Dividend Declaration as per companies act 2013

• Company shall recommend in General Meeting the amount of

dividend which it can decide in Board Meeting.
• The resolution for Dividend in the Notice of General Meeting shall be
mentioned by the company
• General Meeting will be held by the company:
1. Declaration of the dividend is Ordinary Business.
2. Ordinary Resolution for the declaration of a dividend will be passed in the
General Meeting.
• It must be paid within 30 days once the dividend is declared.
Prohibition on Dividend declaration as per companies
act 2013

• if a company having default section 73 and 74 related to deposit and

repayment of deposit or interest then it may or may not declare a
dividend.
• if a company fails to comply with the acceptance of deposits and
repayment of deposits then it cannot declare a dividend.
Some Important points

• it is the responsibility of the Board to declare the dividend and

transfer the amount to the reserve.
• in respect of dividend, the bonafide decision of board cannot be
challenged.
• the dividend should be declared at the unconditional basis and must
be paid within 30 days.
• The dividend on equity shares can be distributed only after dividend
on preference shares is declared.
• The amount of the dividend, including interim dividend, shall be
deposited in a scheduled bank in a separate account within 5 days
from the date of declaration of such dividend.
Top dividend-yield stocks
(examples)
• Jio Financial
• Vedanta
• TV Today Ntework
• Hindustan Zinc
• IDFC
• Coal India
• Novartis India

• Link:
• https://www.moneycontrol.com/stocks/marketstats/bsetopdiv/
Top 10 dividend-yield stocks among
PSUs
• At a dividend yield of 10.9 per cent, Coal India tops the list of the
highest dividend-paying companies, followed by SAIL at a yield of 9.6
per cent. In FY22, Coal India's dividend per share (DPS) stood at ₹17
and in FY23, the DPS stood at ₹24.3.

• Link to the article:

https://www.livemint.com/market/stock-market-news/coal-india-sail-
oil-india-ongc-among-top-dividend-yield-stocks-should-you-buy-
11693926271575.html
Interim Dividend
• Pursuant to subsection 3 of section 123 of Companies Act, 2013 and
relevant rules made thereunder, a dividend is said to be an Interim
dividend, if it is declared by the board of directors during any financial
year or at any time during the period from the closure of financial
year till holding of the annual general meeting.
• It is paid any time between two Annual General Meetings ·
• The interim dividend is to be paid out of any one of the following:
i) out of surplus in the profit and loss account or
ii)out of profits of the financial year in which such interim dividend is sought to
be declared
iii)out of profits generated in the financial year till the quarter preceding the
date of declaration of the interim dividend
Why Does A Company Pay An Interim Dividend:

• The payment of an interim dividend by a firm is regarded as an

indicator of whether or not its full-year earnings will meet analyst
estimates.
• Paying an interim dividend can serve as a positive signal to the
market, indicating that the company is performing well and expects to
continue doing so.
• This display of confidence can contribute to supporting the share
price and potentially attract more investors.
• It offers investors a mechanism to continue earning income in the
interim between regular cash dividend payments.
Glenmark Life Sciences declares interim
dividend of 1025%, fixes record date
Bajaj Holdings and Investment announced Interim
dividend

• Bajaj Holdings and Investment Ltd. on Friday, September 15, 2023

announced that its board of directors has approved an interim
dividend of ₹110 per share, or 1,100 per cent, for the current financial
year.
• The record date for the payment of the dividend has been fixed as
September 29, 2023,
Unpaid Dividend Account (Section-124)

• If the Dividend declared is not paid or claimed within 30 days from the
date of the declaration to any shareholder, the company shall, within
7 days from the date of expiry of the said period of 30 days, transfer
the total amount of dividend which remains unpaid or unclaimed to a
special account to be opened by the company in that behalf in any
scheduled bank to be called the Unpaid Dividend Account.

• All shares in respect of which dividend has not been paid or claimed for
seven consecutive years or more shall be transferred by the company in
the name of Investor Education and Protection Fund.
Punishment for failure to distribute dividends
(Section 127)

• The company has declared a dividend but has not been paid or the
warrant in respect thereof has not been posted within thirty days
from the date of the declaration to any shareholder who is entitled to
the payment of the dividend then:
i) every director of the company shall if he is knowingly a party to the default,
be punishable with imprisonment which may extend to 2 years and with fine
which shall not be less than Rs. 1000/- for every day during which such default
continues and
ii) the company shall be liable to pay simple interest at the rate of 18% per
annum during the period for which such default continues.
Investor Education and Protection Fund (IEPF)

• Investor Education and Protection Fund (IEPF) is a fund that is created

by the Central Government under section 125 of the Companies Act,
2013 for the promotion of investors’ awareness and protection of the
interests of investors.

• Any money transferred to the Unpaid Dividend account of a company

and which remains unpaid or unclaimed for a period of seven years
from the date of such transfer shall be transferred by the company
along with interest accrued, if any, thereon to the Investor Education
and Protection Fund.
Tax on Dividends

• The Finance Act 2020 abolished the concept of Dividend Distribution

Tax (‘DDT’) and also withdrew the exemption u/s 10(34) of the
Income Tax Act, 1961 (‘IT Act’) resulting into taxability of dividends in
the hands of the ultimate shareholders.
• Accordingly, Section 194 of the IT Act provided that the companies
declaring dividends are under an obligation to withhold tax @10%
before making any dividend payment to it’s resident shareholders.
• However, the company is under no obligation to deduct tax at source,
if the aggregate amount of dividend distributed/likely to be
distributed in a particular financial year does not exceed Rs. 5,000 and
the dividend is paid by any mode other than cash.