Dividend - Comparison between Cos Act 1956 Vs 2013
Mohan Kumar
Freedom from "Transfer to reserve"...
New Conditions for Interim Dividend..
Transfer of shares to Investor Protection Fund....!
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Dividend - Comparison between Cos Act 1956 Vs 2013
Cs. Uma Madhu, AGM Finance - Red FM
Companies Act 2013 has brought out a few changes in the existing provisions of Companies Act 1956 regarding declaration and payment of dividend.
Chapter III and Rules 3 – 3.23 of Companies Act 1956 dealt with "Dividend". In the Current Act, Chapter VIII and Draft Rules 8.1 - 8.7 of Companies Act 2013 deal with the same.
Similarly, the relevant sections in 1956 Act were Section 205 and 207. Now, Sections 123 to 127 of Companies Act 2013 deal with the same.
A Quick Run Through of provisions in Companies Act 1956 and CA 2013.
-The dividend shall be paid out of
1. Profits of the company for the year after providing for depreciation or
2. Profits of the previous years arrived at after providing for depreciation and remaining undistributed or
3. Both of the above
-Dividend shall be paid to registered shareholders only, whose names appear in the register of members of the company in case of physical shares and to the registered beneficial owners whose names appear in the register of beneficial owners maintained by depository in case of dematerialized shares
-The Interim Dividend can be declared by the board through board's resolution and not by resolution by circulation
-The Final Dividend can be recommended by board and declared by shareholders only in the Annual General Meeting. The share holders cannot increase the Percentage of Dividend but they can decrease it
--Dividend once declared becomes the debt for the company and the company cannot revoke the decision once declared
-Within 5 days from the date of declaration of dividend, the company has to deposit the amount of dividend in a separate account opened for this purpose in any scheduled bank.
-Within 30 days from the date of declaration of dividend, the dividend has to be paid or the dividend warrant has to be dispatched.
-Within 7 days from the date of expiry of the 30 days of declaration of dividend , the unclaimed or unpaid dividend has to be deposited by the company in a separate account opened for this purpose called "Unpaid Dividend Account"
-Within 90 days from the date of transfer of unpaid or unclaimed dividend to a special account, the company has to prepare a Statement of unpaid dividend and display the same in the web site of the company and In any other web site as approved by the central government in prominent manner
-After the expiry of 7 years from the date of transfer of the Unpaid and Unclaimed Dividend to "Unpaid Dividend Account", the unpaid or unclaimed amount shall be transferred to "Investors Education and Protection Fund" established by the Central Government.
-When instrument of transfer of shares is delivered to a company for registration and the transfer of shares is not registered by the company, the dividend in respect of such shares shall be transferred to “Unpaid Dividend Account” unless the company is authorized by the registered holder of such shares in writing to pay such dividend to the transferee specified in such instrument of transfer.
-Also keep in abeyance in relation to such shares any offer of right shares under Sec 62(1)(a) and any issue of fully paid bonus shares in pursuance of Sec 123(5)
COMPARISON BETWEEN COMPANIES ACT 2013 AND COMPANIES ACT 1956
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COMPARISON BETWEEN COMPANIES ACT 2013 AND 1956 | ||||
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2013 | |
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1 |
Transfer to Reserve |
Mandatory transfer of specified percentage of profits to reserve |
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Mandatory transfer to reserves has not been acknowledged by CA 2013.Companies are free to transfer any or no amount to reserves |
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2 |
Interim Dividend |
All provisions applicable to final dividend equally apply to interim dividend |
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Specifically provides that if the company incurs loss during the current financial year, upto the end of the quarter immediately preceding the date of declaration of interim dividend, then the interim dividend cannot be declared by the company at a rate higher than the average dividends declared during the immediately preceding three financial years |
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3 |
Restriction on declaration of Dividend |
Company cannot declare dividend if irredeemable preference shares are not redeemed (80A) |
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Company cannot declare dividend if the company fails to comply with acceptance of deposits and repayment of deposits accepted prior to the commencement of 1956 Act.(73 & 74) |
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4 |
Mode of Payment |
Dividend cannot be by way of kind. Dividend payable in cash can be paid by cheque or warrant |
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Dividend cannot be paid by way of kind. Dividend payable in cash can be paid by cheque or warrant or through any electronic mode. Electronic mode of payment is permitted |
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COMPARISON BETWEEN COMPANIES ACT 2013 AND 1956 | ||||
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1956 |
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2013 | |
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5 |
Transfer of shares to IEPF |
CA 1956 provides that only unclaimed or unpaid dividend can be transferred to IEPF |
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CA 2013 provides that not only unpaid or unclaimed dividend can be transferred to IEPF but the shares on which the dividend is unpaid or unclaimed can also be transferred to IEPF along with a statement with certain specified details |
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6 |
Useful life of asset |
Schedule VII of CA 1956 deals with Depreciation |
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The existing provision of CA 1956 have been retained. The main highlights of 2013 are the residual value or useful life of an asset has been specified in Part C of the schedule. The company has to disclose the cases where the useful life or residual value is different from the useful life or residual value as specified in Part C of the schedule and Part C is not applicable to companies for whom the useful life or residual value is notified by a regulatory authority |
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7 |
Payment of dividend out of free reserves |
It provides that dividend shall be paid out of "Reserves" |
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It provides that dividend shall be paid out of "Free Reserves" only. The term "Free Reserves" is defined now |
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8 |
Credit to IEPF widened |
Items to be credited to IEPF Account are being retained |
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The items to be credited to IEPF Account has been widened to include additional items over and above the existing items |
Dividend related activities - Listing Compliance
Some important clauses in the listing agreement relating to Dividend are compiled below:
-Clause-12A(4)-To keep dividend in abeyance where such dividend declared in the interval between lodgment of a valid instrument for transfer of shares with the company and its eventual registration
-Clause 16-To agree to close its books for the purpose of declaration of dividend and give notice to Stock Exchange at least 7 working days in advance of the date of closure of transfer books and also will intimate the purpose for which the transfer books are closed
-Clause-19-The company will intimate the Stock Exchange at least 2 working days in advance about the Board Meeting at which the proposal for recommendation of dividend and or passing of dividend due to be considered. The company will recommend or declare dividend at lease 5 days before commencement of the closure of its transfer books
-Clause-20A-The company agrees to declare and disclose the dividend on per share basis only
-Clause-21-The company will fix and notify the Stock Exchange at least 21 days in advance of the date on from which the dividend on shares will be payable and also will issue the dividend warrants/ cheques payable at par at such Centres as agreed to between the Stock Exchange and the company and also collected at par with collection charges at the cost of the company in any bank in the country other than the Centres agreed to between the Stock Exchange and the company to speed up the payment process on or before the date fixed for payment
-Clause-28A-The company agrees that it shall not issue shares in any manner which may confer on any person any superior rights as to voting or dividend with the rights on equity shares that are already listed
-Clause-49- In respect of complaint received from any shareholder regarding non receipt of dividend, a board committee called “Share holders or Investors Grievance Committee” under the chairmanship of a non executive director shall be formed to redress the grievances of shareholders
Penal Provision - Sec 124(7)
If a company fails to comply with any of the requirements of Sec 124, the company shall be punishable with fine which shall not be less than five lakh rupees but may extend to twenty five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees
Penal Provision – Sec 127
-Where a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within thirty days from the date of declaration to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to two years and with fine which shall not be less than one thousand rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate of eighteen per cent per annum during the period for which such default continues
Provided that no offence under this section shall be deemed to have been committed:—
(a)where the dividend could not be paid by reason of the operation of any law;
(b) where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with and the same has been communicated to him;
(c) where there is a dispute regarding the right to receive the dividend;
(d) where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder; or
(e) where, for any other reason, the failure to pay the dividend or to post the warrant within the period under this section was not due to any default on the part of the company.
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Note:
Tomorrow being women's day, a Special article will be published at 8 AM in the blog. Guess the topic for tomorrow !