Key Highlights on Secretarial Standard on Dividends

Key Highlights on Secretarial Standard on Dividends

1. The principles set out herein relate to declaration and payment of Dividend on equity as well as preference share capital in accordance with the provisions of the Act and are in respect of Dividend as it relates to a going concern. These are equally applicable to Final as well as Interim Dividend unless otherwise stated.
2. Definition:- “Dividend” means a distribution of any sums to Members out of profits and wherever permitted out of free reserves available for the purpose.
3. Definition:- “Final Dividend” means the Dividend recommended by the Board of Directors and declared by the Members at an Annual General Meeting.
4. Definition:- “Interim Dividend” means the Dividend declared by the Board of Directors.
5. Important Definition:- “Free Reserves” means such reserves which, as per the latest audited balance sheet of a company, are available for distribution as Dividend.

However, the following amount shall not be treated as free reserves:

1. any amount representing unrealised gains, notional gains or revaluation of assets, whether shown as reserve or otherwise, or
2. any change in carrying amount of an asset or of a liability recognised in equity, including surplus in profit and loss account on measurement of the asset or the liability at fair value.
3. Dividend shall be paid out of the profits of the financial year for which such Dividend is sought to be declared and/or out of profits for any previous financial year(s) which remains undistributed after providing for depreciation in accordance with the provisions of the Act.
4. Dividend may also be declared out of money provided by the Central Government or a State Government in pursuance of a guarantee given by such Government for this purpose.
5. A company shall not declare Dividend on its equity shares in case of non-compliance of provisions relating to the acceptance of deposits under the Act, till such time the deposits accepted have been repaid with interest in accordance with the terms and conditions of the agreement entered with the depositors.
6. Dividend shall not be declared out of the 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.
7. Interim Dividend shall be declared and paid out of the surplus in the profit & loss account and/or out of profits of the financial year in which such Dividend is sought to be declared.
8. Where a company has issued equity shares with differential rights as to Dividend, Interim Dividend may, at the option of the Board, be declared on all or any one or more of the classes of such shares in accordance with the terms of issue.
9. 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 following conditions:
10. The rate of Dividend declared by the company shall not exceed the average of the rates at which Dividend was declared by it in the three financial years immediately preceding the financial year of declaration of Dividend.
11. Total withdrawal from the accumulated profits shall not exceed one tenth of the sum of the paid up share capital and free reserves of the company as per the latest audited financial statements.
12. The amount so withdrawn shall first be utilised to set off the losses, if any, incurred in the financial year in which Dividend in respect of equity shares is proposed to be declared.
13. The balance of Free Reserves after such withdrawal shall not fall below 15% of the paid up share capital of the company as per the latest audited financial statements.
14. In the event of a loss or inadequacy of profits during a financial year, no Interim Dividend shall be declared/ paid out of Free Reserves. However, Final Dividend may be declared/paid out of Free Reserves subject to the conditions as above (clause no. 12).
15. No Dividend shall be declared on equity shares for previous years in respect of which annual financial statements have already been adopted at the respective Annual General Meetings.
16. Distribution of discount coupons to all the Shareholders shall not be treated as deemed Dividend.
17. A company is prohibited to issue Bonus shares in lieu of Dividend.
18. Preference Shareholders shall be paid Dividend before Dividend is paid to the equity Shareholders of the company.
19. Dividend shall be deposited in a separate bank account within 5 days from the date of declaration and shall be paid within 30 days of declaration. The intervening holidays, if any, falling during such period shall be included.
20. Taxes as applicable on distribution of Dividend shall be paid by the company within the prescribed time.
21. Dividend shall be paid in cash and not in kind.
22. When payment is made by Dividend warrant, the name of the bank and account number, if available, shall be mentioned in the warrant after the name. In case these are not available, address of the Member shall be printed after the name.
23. 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.
24. A cheque or warrant for payment of Dividend shall be valid for a period of 3 months from the date of issue. Where such cheque or warrant remains unpaid after the initial period of validity, a fresh instrument shall be issued in lieu thereof, within 15 days of the receipt of a valid request in this regard and such instrument shall also have a validity of 3 months from the date of its issue.
25. Particulars of every fresh cheque or warrant issued by the company shall be entered in a Register of Dividend Warrants kept for the purpose indicating the name of the person to whom the instrument is issued, the number and amount of such instrument and the date of issue.
26. A duplicate Dividend cheque or warrant shall 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.
27. The Dividend cheque or warrant shall be accompanied by a statement in writing showing the amount of Dividend paid, Folio no./DP ID and Client ID nos., number of shares held by the concerned Member as on the record date, amount paid up on each share and the financial year to which the Dividend pertains
28. Dividend shall be paid proportionately on the paid-up value of shares.
29. Calls in arrears and any other sum due from a Member in relation to the shares of the company may be adjusted against Dividend payable to the Member.
30. 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.
31. The amount of Dividend which remains unpaid or unclaimed after 30 days from the date of its declaration shall be transferred to a special bank account titled as ‘Unpaid Dividend Account’ to be opened by the company in that behalf with any scheduled bank. Such transfer shall be made within 7 days from the date of expiry of the 30 days period from the date of declaration of Dividend.
32. The company shall within a period of 90 days of transferring such amount to ‘Unpaid Dividend Account’ prepare a statement containing the names, last known addresses and the amount of Dividend to be paid to each of the Members. 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 Investor Education and Protection Fund (the Fund) and be updated by the company at regular intervals.
33. Any person claiming to be entitled to any amount transferred to the Unpaid Dividend Account may apply to the company for payment of such amount.
34. Any amount in the Unpaid Dividend Account of the company which remains unpaid or unclaimed for a period of 7 years from the date of transfer of such amount to the Unpaid Dividend Account, along with interest accrued, if any, shall be transferred to the Investor Education and Protection Fund.
35. Before transferring any unclaimed or unpaid Dividend to the Investor Education and Protection Fund, the company shall give an individual intimation to the Members in respect of whom such unclaimed Dividend is being transferred, at least 3 months before the due date of such transfer.
36. Any interest earned on the Unpaid Dividend Account shall also be transferred to the Investor Education and Protection Fund.
37. 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.
38. Dividend, once declared, becomes a debt and shall not be revoked.
39. 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 8 years.
40. Notes to Accounts forming part of the financial statements of the Company shall disclose the aggregate amount of Dividend proposed to be distributed to equity and Preference Shareholders for the financial year and the related amount of Dividend per share. Arrears of fixed cumulative Dividend on preference shares shall also be disclosed separately.
41. The Balance Sheet of the company shall also disclose under the head ‘Current Liabilities and Provisions’, the amount lying in the Unpaid Dividend Account together with interest accrued thereon, if any.
42. The amount of Interim Dividend, if any, paid during the financial year and final Dividend recommended by the Board of directors shall be disclosed in the Board’s Report.
43. The Annual Report of the company shall disclose the total amount lying in the Unpaid Dividend Account of the company in respect of the last 7 years and when such unpaid Dividend is due for transfer to the Fund. The amount of Dividend, if any, transferred by the company to the Investor Education and Protection Fund during the year shall also be disclosed.
44. The company shall give prior intimation to the Stock Exchange(s) about the Board Meeting in which Dividend is proposed to be recommended / declared, at least 2 working days in advance excluding the date of the meeting and the date of the intimation.
45. The company shall intimate the Stock Exchange(s), the record date fixed for the purpose of payment of Dividend at least 7 working days in advance excluding the date of the intimation and the record date.
46. The company shall recommend or declare Dividend at least 5 working days before the record date fixed for the purpose. The said period of five working days is excluding the date of declaration/ recommendation of Dividend and the record date fixed for the purpose.
47. The company shall declare and disclose Dividend on per share basis only.

The company shall disclose in its Corporate Governance Report the Dividend payment date under the General Shareholder Information Section.