URGENT: Query on Dividend

[padma loya]

Dear All,

I have a small query.  Kindly help me out with this.

Whether the Interim dividend once declared can be withdrawn by the Board of Directors?

Regards,
Padma

[Jayashree Chandrasekaran]

Yes, the same can be withdrawn

Jayashree

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C.JAYASHREE

PARTNER

S.GANESH&ASSOCIATES

CHENNAI

98840 17120

[vickyp...@gmail.com]

Dear padma,
In my opinion, i dont think so you can withdraw the interim dividend once you declare it..
As final dividend, it becomes debt for the company once the board delares the dividend..

Correct me if i am wrong....

Sent from my Nokia phone

[Vivek Hegde]

Dear Padma

I too agree with Mr. Vikas. Same has been dealt by Secretarial Standards as under:

Revocation of Dividend  

7.1   Dividend, once declared, becomes a debt and should not be revoked. 

Standard 7.1 shall also apply to Interim Dividend. 

Vivek

--
Warm Regards

CS Vivek Hegde,B.com, ACS, CWA
Company Secretary in Practice
No. 405, 4th Block, 7th Cross
Koramangala, Bangalore-560034
Mob: 09019756940/09900898223

[padma loya]

Hello,

I just found it out, that The BOD have the full authority to withdraw the same.  it is clearly stated in Ramaiya Page- 1911-1912.

Thanks all.
Padma

On Fri, Feb 11, 2011 at 10:50 AM, vickyp...@gmail.com <vickyp...@gmail.com> wrote:

[Jayashree Chandrasekaran]

only when share holders approve it becomes a debt...in case of interim dividend the same can be withdrawn but it is not possible in case of final dividend which is approved by share holders

Jayashree

On Fri, Feb 11, 2011 at 10:50 AM, vickyp...@gmail.com <vickyp...@gmail.com> wrote:

[padma loya]

I agree Mr. Vivek, but the provisions of Sec 205-A do not apply in their full extent to Interim dividend. it is attracted only when interim dividend becomes final or part of final dividend.
Further, it is only declared by the Board and not the company.  Thus, it can be rescinded at any time by a resolution.

Regards,
Padma

[varsha jain]

yess

 i too agree wd Mr. Vivek sir, dividend once declared can not be withdrawn.

Varsha jain 

On Fri, Feb 11, 2011 at 10:55 AM, Vivek Hegde <vivekhe...@gmail.com> wrote:

[padma loya]

Absolutely, I agree to Jayshree Mam.

[nidhi goel]

Hello!

as per sec 2(14A) dividend includes interim dividend, so i think too that once interim dividend is declared then it cant be withdrawn................

On Fri, Feb 11, 2011 at 10:55 AM, Vivek Hegde <vivekhe...@gmail.com> wrote:

--
With Regards

Nidhi Goel

Company Secretary.

Nidhi Goel & Co.
Ph: 9811628703

[Vivek Hegde]

Dear All

Ordinarily, a dividend once declared, cannot be revoked, except with the consent of the shareholders. Once the shareholders approve the declaration of dividend, it becomes a debt for the company towards its shareholders. However, prior to the amendment of Companies Act in 2000, it was possible for a company to declare interim dividend and withdraw the same if the directors so desired. Now the position is that, once the dividend is declared, whether interim or final, the company is bound to pay it to all the shareholders. The law on this issue is well settled as held by the Supreme Court in the case of Kishinchand Chellaram v. CIT. [(1962) 32 Com Cases].

Secretarial Standard which I quoted above is supporting this stand.

Hope it clarifies.

Contrary views solicited.

Vivek

[Srinivasa Kiran Sistla]

Hi, Happy morning to all of you.

 

I would like to share my view as under: -

 

Dividend, once declared, becomes a debt and should not be revoked.. 

The same is being supported by our Secretarial Standard 3.

 

Regards

 

Kiran.

---- On Thu, 10 Feb 2011 21:37:40 -0800 Vivek Hegde <vivekhe...@gmail.com> wrote ----

[padma loya]

Sir,

Shareholders do not get any vested right under a director's resolution for payment of interim dividend and, therefore, such resolution is revocable.  A vested right to dividend arises on declaration of dividend at a GM of shareholders.  It is well settled in CIT vs. Express Newspaper Ltd. (1998).
Further, the payment of interim dividend is not conditional upon subsequent declaration of such a dividend by a general meeting.
The case laws in support to this are:
Punjab National Bank Vs. UOI (1986) 59 Com cases 35 (Del)
Lucas v. Fitzgerald (1903) 20 TLR 16
Dalmia. J v. CIT (1964) 34 Com Cases 668

Regards,
Padma

[padma loya]

Contrary views solicited and please correct me if I am wrong..

Padma

[Ashish Aggarwal]

what if dividend is declared wrongly out of capital.

Ashish Aggarwal

[Astarag]

Dividend and interim dividend both are recommended by the board for approval and declaration at AGM

its wrong to say that board has / can declare(d) interim dividend/dividend 

board can withdraw its recommendation before its declaration at AGM

any way by board resolution only

after declaration at AGM same is considered as debt

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with regards,

Cs. P.A. Patnaik

[Astarag]

Sorry I was wrong

as per sec 205(1A) board may declare interim dividend and it must be deposited in separate account with in 5 days

once interim dividend is declared by board it can not be rescinded as it becomes a debt

other wise directors are personally liable for payment of interim div, if declared wrongly

all provisions applicable to dividend are applicable to interim dividend

[padma loya]

Mr. Astarag,

The first part is correct.  But as for the second part , it is clearly established in the Punjab National Banks 's case that the proposition that a declaration by the directors of an intended dividend  to be paid at some future date may be rescinded by a resolution of the directors before that date arrives.  The decisive act is the payment and not the declaration.  A mere declaration without payment has no value.  If the directors declare and do not pay, there is no liability.  A declaration is a mere intention. It can reviewed, varied and also rescinded..

Padma

[varsha jain]

yess
as Board has the recomndatory  power to declare dividend either interim or final and after such recommendation it has to comply wd all the related provision of companies act.

the power of withdrawn is only wd the shareholders of the Company in their meeting.

so in my understanding Board can nt withdraw it after declaration.

Varsha Jain

 

On Fri, Feb 11, 2011 at 11:51 AM, Astarag <papa...@gmail.com> wrote:

[nidhi goel]

Hello!

With Amendment Act, 2000 in Companies Act, it was defined that dividend includes interim dividend and all the provision which are applicable on Dividend would be equally applicable on Interim Dividend.

[padma loya]

It is further established in Kothari Textiles Ltd. v CWT (1963) 33 com cases 217 and also in CF. Lagunas nitrate Co. Ltd. v. Schroeder & Co. and Schmidt (1901) 85 Law Times 22, that The BOD on further consideration, and at any time before the payment of the same, rescind the resolution for payment.

Padma

On Fri, Feb 11, 2011 at 12:02 PM, varsha jain <csvars...@gmail.com> wrote:

[Vivek Hegde]

Dear All

It is evident from the above that the issue is debatable and we can find the 'n' number of case laws on the both the sides.

The Supreme Court in Dalmia J. v. CIT (1964) 34 Com. Cases 668, AIR 1964 SC 1866,had approved the decision in Lagunas Nitrate Co Ltd v. Schroeder and Co and Schmidt, (1901) 85 LT 22: (1901) 17 LTR 625 that the directors have the power to rescind the interim dividend before its payment.

The Companies (Amendment) Act, 2000 has inserted under Section 2, a new sub-section (14-A) which reads as under:

`Dividend' includes any interim dividend. The above insertion appears to have created a controversy by certain sections, in equating interim dividend to dividend declared at the Annual General Meeting for all purposes under the Companies Act.

Section 205, sub-section (1C) reads as under :

The provisions contained in Sections 205, 205A, 205C, 206, 206A and 207 shall, as far as may be, also apply to any interim dividend.

As to what purpose the Legislature intended it to serve can be attempted to be reconciled if one were to understand the import of the words `shall, as far as may be' contained in sub-section (1C) of the said Section. In so far as the requirement laid down under sub-sections (1) and (2A) of Section 205 of the Companies Act, 1956 are concerned, one has to bear in mind that the words used are in relation to declaration or payment of a dividend for any financial year, which is not the case in relation to payment of interim dividend, unless the same is confirmed as final dividend at the general meeting.

Inasmuch as interim dividend stands on a different footing from dividend declared or paid by a company for any financial year, a question could arise as to which provisions of Section 205 of the Companies Act, 1956 would apply in relation to interim dividend.

The matter appears to be resolved if one were to resort to the import of the words `shall, as far as may be' contained in the sub-section (1C) which would operate to limit the applicability of Section 205 of the Companies Act, 1956 to the newly inserted sub-sections (1A) and (1B) of the said section.

However, in view of the applicability of Section 207 of the Companies Act, 1956 to interim dividend, under which penalty for failure to despatch warrants within 30 days of its declaration has been prescribed, going by the salutary principle that in law nobody can take advantage of his own default, directors would have the power to rescind the payment of dividend only up to the 29th day of its declaration and not thereafter, since after the 30th day it becomes a statutory default.

The Supreme Court of India in the CIT v. Express Newspapers Ltd (1998) 3 SCC 106, cited with approval the above cases of Dalmia v. CIT and Lagunas Nitrate Co Ltd v. Schroeder and Co and Schmidt for the purpose of bringing out the difference in the nature of interim dividend and the dividend declared by the company at its general meeting.

In the case of Dalmia v. CIT, the Supreme Court held that a mere resolution of the directors resolving to pay a certain amount as interim dividend does not create a debt enforceable against the company, for it is always open to the directors to rescind the resolution before payment of the dividend.

A similar view was taken in the case of Lagunas Nitrate Co Ltd v. Schroeder and Co and Schmidt. Supporting the observations made in the aforesaid cases, the Supreme Court in the CIT v. Express Newspapers Ltd held that the nature of the interim dividend is such that it gives no right to the shareholders to receive it merely on the passing of the resolution by the board of directors whereas on a dividend being declared by the company in a general meeting, a vested right accrues to the shareholders.

The changes in the Companies Act, 1956 put into effect during the year 2000 have not changed the legal position insofar as it relates to the power of the board of directors of a company to revoke a interim dividend declared before it is paid out and to avoid interim dividend being declared a statutory default, such revocation would have to be done on or before the 29th day of its declaration by the board.

In view of the above, we can rely on this stand and agree with Ms. Padma till the next pronouncement/decision..!

Secretarial Standard 3 is only recommendatory, though it is against the above view. 

Warm Regards

CS Vivek Hegde,B.com, ACS, CWA
Company Secretary in Practice
No. 405, 4th Block, 7th Cross
Koramangala, Bangalore-560034
Mob: 09019756940/09900898223

[Jayashree Chandrasekaran]

I think this query has assumed a very interesting point of view...i request everyone to join and argue...

jayashree

[CS Akshaya Kumar Pradhan]

Dear Padma,

 

u r refering to precedents(Case Laws) of years preceeing 2000.The amendmed came in year 2000  treating interim and final dividend ar par.Hence those old precedent will hv no force in law.

On Fri, Feb 11, 2011 at 12:07 PM, padma loya <loya....@gmail.com> wrote:

--
Thanks With Warm Regards
Akshaya Kr Pradhan
Chennai-600094
Mob.+91-99520-29075

[padma loya]

Dear All,

I apologise, if I have created an unnecessary kind of argument.  But, it is very important for me to get clarified.  

Regards,
Padma

[Jayashree Chandrasekaran]

very well presented Vivek

Jayashree

[Jayashree Chandrasekaran]

Dear Padma,

I dont think u need to apologise...this is just a healthy discussion on a company law point...

Jayashree

[Vivek Aggarwal]

Dear Padma

Dividend once declared cannot be withdrawn. However shareholders can reduce the rate at the AGM.

 

Regards
CS Vivek Aggarwal

---

From: padma loya <loya....@gmail.com>
To: csmy...@googlegroups.com; emerging-compa...@googlegroups.com
Sent: Friday, 11 February 2011 9:30 AM

Subject: [CSMysore] URGENT: Query on Dividend

[padma loya]

Thanks Jayshree.  Thanks Vivek  for the summarized view of the discussion.

Padma

[padma loya]

Yes Sir,  I am referring precedents, but considering the 2000 amendment as well.

[Vivek Aggarwal]

Dear Padma

As per section 2(14A) Dividend includes any Interim Dividend. Therefore, all the provision of Dividend are also applicable to Interim Dividend.

Further, Board does not 'declare' but only 'recommends' the Dividend. The members have the power to 'declare'.

 

Regards
CS Vivek Aggarwal

---

From: padma loya <loya....@gmail.com>
To: csmy...@googlegroups.com

Sent: Friday, 11 February 2011 11:01 AM
Subject: Re: [CSMysore] URGENT: Query on Dividend

I agree Mr. Vivek, but the provisions of Sec 205-A do not apply in their full extent to Interim dividend. it is attracted only when interim dividend becomes final or part of final dividend.
Further, it is only declared by the Board and not the company.  Thus, it can be rescinded at any time by a resolution.

Regards,

Padma

On Fri, Feb 11, 2011 at 10:55 AM, Vivek Hegde <vivekhe...@gmail.com> wrote:

Dear Padma

I too agree with Mr. Vikas. Same has been dealt by Secretarial Standards as under:

Revocation of Dividend  

7.1   Dividend, once declared, becomes a debt and should not be revoked. 

Standard 7.1 shall also apply to Interim Dividend. 

Vivek

On Fri, Feb 11, 2011 at 10:50 AM, vickyp...@gmail.com <vickyp...@gmail.com> wrote:

Dear padma,
In my opinion, i dont think so you can withdraw the interim dividend once you declare it..
As final dividend, it becomes debt for the company once the board delares the dividend..

Correct me if i am wrong....

Sent from my Nokia phone

-----Original Message-----
From: padma loya
Sent:  11/02/2011 09:30:01

Subject:  [CSMysore] URGENT: Query on Dividend

Dear All,

I have a small query.  Kindly help me out with this.

Whether the Interim dividend once declared can be withdrawn by the Board of
Directors?

Regards,
Padma

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Warm Regards

CS Vivek Hegde,B.com, ACS, CWA
Company Secretary in Practice
No. 405, 4th Block, 7th Cross
Koramangala, Bangalore-560034
Mob: 09019756940/09900898223

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[Vivek Aggarwal]

Dear Akshaya

You are right. The position has changed after the Amendment in 2000.

 

Regards
CS Vivek Aggarwal

---

From: CS Akshaya Kumar Pradhan <akshayakum...@gmail.com>
To: csmy...@googlegroups.com
Sent: Friday, 11 February 2011 12:11 PM

Subject: Re: [CSMysore] URGENT: Query on Dividend

Dear Padma,

 

u r refering to precedents(Case Laws) of years preceeing 2000.The amendmed came in year 2000  treating interim and final dividend ar par.Hence those old precedent will hv no force in law.

On Fri, Feb 11, 2011 at 12:07 PM, padma loya <loya....@gmail.com> wrote:

It is further established in Kothari Textiles Ltd. v CWT (1963) 33 com cases 217 and also in CF. Lagunas nitrate Co. Ltd. v. Schroeder & Co. and Schmidt (1901) 85 Law Times 22, that The BOD on further consideration, and at any time before the payment of the same, rescind the resolution for payment.

Padma

On Fri, Feb 11, 2011 at 12:02 PM, varsha jain <csvars...@gmail.com> wrote:

yess
as Board has the recomndatory  power to declare dividend either interim or final and after such recommendation it has to comply wd all the related provision of companies act.

the power of withdrawn is only wd the shareholders of the Company in their meeting.

so in my understanding Board can nt withdraw it after declaration.

Varsha Jain

On Fri, Feb 11, 2011 at 11:51 AM, Astarag <papa...@gmail.com> wrote:

Sorry I was wrong

as per sec 205(1A) board may declare interim dividend and it must be deposited in separate account with in 5 days

once interim dividend is declared by board it can not be rescinded as it becomes a debt

other wise directors are personally liable for payment of interim div, if declared wrongly

all provisions applicable to dividend are applicable to interim dividend

On Fri, Feb 11, 2011 at 11:37 AM, Astarag <papa...@gmail.com> wrote:

Dividend and interim dividend both are recommended by the board for approval and declaration at AGM

its wrong to say that board has / can declare(d) interim dividend/dividend 

board can withdraw its recommendation before its declaration at AGM

any way by board resolution only

after declaration at AGM same is considered as debt

On Fri, Feb 11, 2011 at 9:30 AM, padma loya <loya....@gmail.com> wrote:

Dear All,

I have a small query.  Kindly help me out with this.

Whether the Interim dividend once declared can be withdrawn by the Board of Directors?

Regards,
Padma --
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with regards,

Cs. P.A. Patnaik

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with regards,

Cs. P.A. Patnaik

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Thanks With Warm Regards
Akshaya Kr Pradhan
Chennai-600094
Mob.+91-99520-29075

[varsha jain]

hi all

on such interesting discussion i wana say smthng,
i m very much new in this grp and also recently got my membership no..
I accidentally joined this grp. but after joining i realise how much lucky i m to b part of this. 

you guys are seriously owesom,  the knowledge u hav heads off to this.

I specially wana thanks to Mr. Vivek Sir and Jayshree Mam who use to reply us as soon as possible.

Thank You very much.

[padma loya]

True, even I agree with Varsha.  Special thanks to Vivek Sir and Jayshree Mam.

Padma

[Suresh Kumar Vaishraj]

Dear Friends,

 

I have the same expression and second Ms. Varsha Jain.

 

Coming to the point:

 

As per section 205(1A) - Interim dividend shall be deposited in separate bank acco. within 5 days from the date of declaration and as per section 205(1B) amount so deposited shall be utilised for payment of interim dividend. So once amount goes into separate bank account, can not be withdrawn.

 

Though there is usage of lenient phrase i.e. "shall, as far as may be" in section 205(1C). The harmonious interpretion could be, interim dividend can be revoked but has to be revoked before the expiry of the 5 days period (and not upon the expiry of 30 days). Thus upon declaration if not deposited in 5 days it will be violation of section 205(1B).

 

This means I feel interim dividend once declared can be revoked by the Board itself, but it should be done within 4 days from the date of declaration of interim dividend.

 

I solicit the views of others.

 

Thanks and Regards,

Suresh Kumar V
Company Secretary
91-9849991201

[varsha jain]

yesss

I have read this its five days nt 30 days and i agreed wd ur point.

[Vivek Hegde]

Dear All

Thank you for your inputs and appreciation. 

Dear Mr. Suresh/Varsha

I agree with you. That would be much conservative and safe way of interpretation of the provisions.

Thanks for the input.

Vivek Hegde