CHAPTER VIII DECLARATION AND PAYMENT OF DIVIDEND
DECLARATION AND PAYMENT OF DIVIDEND
123.Declaration of dividend.
(1) No dividend shall be declared or paid by a company for any financial year
(a) out of the profits of the company for that year arrived at after providing for
depreciation in accordance with the provisions of sub-section (2), or out of the profits
of the company for any previous financial year or years arrived at after providing for
depreciation in accordance with the provisions of that sub-section and remaining
undistributed, or out of both; or
(b) out of money provided by the Central Government or a State Government for
the payment of dividend by the company in pursuance of a guarantee given by that
Provided that a company may, before the declaration of any dividend in any financial
year, transfer such percentage of its profits for that financial year as it may consider appropriate
to the reserves of the company:
Provided further that where, owing to inadequacy or absence of profits in any financial
year, any company proposes to declare dividend out of the accumulated profits earned by it in
previous years and transferred by the company to the reserves, such declaration of dividend
shall not be made except in accordance with such rules as may be prescribed in this behalf:
Provided also that no dividend shall be declared or paid by a company from its reserves
other than free reserves.
(2) For the purposes of clause (a) of sub-section (1), depreciation shall be provided in
accordance with the provisions of Schedule II.
(3) The Board of Directors of a company may declare interim dividend during any
financial year out of the surplus in the profit and loss account and out of profits of the
financial year in which such interim dividend is sought to be declared:
Provided that in case the company has incurred loss during the current financial year
up to the end of the quarter immediately preceding the date of declaration of interim dividend,
such interim dividend shall not be declared at a rate higher than the average dividends
declared by the company during the immediately preceding three financial years.
(4) The amount of the dividend, including interim dividend, shall be deposited in a
scheduled bank in a separate account within five days from the date of declaration of such
(5) No dividend shall be paid by a company in respect of any share therein except to
the registered shareholder of such share or to his order or to his banker and shall not be
payable except in cash:
Provided that nothing in this sub-section shall be deemed to prohibit the capitalisation
of profits or reserves of a company for the purpose of issuing fully paid-up bonus shares or
paying up any amount for the time being unpaid on any shares held by the members of the
Provided further that any dividend payable in cash may be paid by cheque or warrant
or in any electronic mode to the shareholder entitled to the payment of the dividend.
(6) A company which fails to comply with the provisions of sections 73 and 74 shall
not, so long as such failure continues, declare any dividend on its equity shares.
124.Unpaid Dividend Account.
(1) Where a dividend has been declared by a company but has not been paid or
claimed within thirty days from the date of the declaration to any shareholder entitled to the
payment of the dividend, the company shall, within seven days from the date of expiry of the
said period of thirty 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.
(2) The company shall, within a period of ninety days of making any transfer of an
amount under sub-section (1) to the Unpaid Dividend Account, prepare a statement containing
the names, their last known addresses and the unpaid dividend to be paid to each person and
place it on the website of the company, if any, and also on any other website approved by the
Central Government for this purpose, in such form, manner and other particulars as may be
(3) If any default is made in transferring the total amount referred to in sub-section (1)
or any part thereof to the Unpaid Dividend Account of the company, it shall pay, from the
date of such default, interest on so much of the amount as has not been transferred to the
said account, at the rate of twelve per cent. per annum and the interest accruing on such
amount shall enure to the benefit of the members of the company in proportion to the amount
remaining unpaid to them.
(4) Any person claiming to be entitled to any money transferred under sub-section (1)
to the Unpaid Dividend Account of the company may apply to the company for payment of
the money claimed.
(5) Any money transferred to the Unpaid Dividend Account of a company in pursuance
of this section 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 Fund established under sub-section (1) of section 125 and the company shall
send a statement in the prescribed form of the details of such transfer to the authority which
administers the said Fund and that authority shall issue a receipt to the company as evidence
of such transfer.
(6) All shares in respect of which unpaid or unclaimed dividend has been transferred
under sub-section (5) shall also be transferred by the company in the name of Investor
Education and Protection Fund along with a statement containing such details as may be
Provided that any claimant of shares transferred above shall be entitled to claim the
transfer of shares from Investor Education and Protection Fund in accordance with such
procedure and on submission of such documents as may be prescribed.
(7) If a company fails to comply with any of the requirements of this section, the
company shall be punishable with fine which shall not be less than five lakh rupees but
which 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.
125.Investor Education and Protection Fund.
(1) The Central Government shall establish a Fund to be called the Investor
Education and Protection Fund (herein referred to as the Fund).
(2) There shall be credited to the Fund—
(a) the amount given by the Central Government by way of grants after due
appropriation made by Parliament by law in this behalf for being utilised for the purposes
of the Fund;
(b) donations given to the Fund by the Central Government, State Governments,
companies or any other institution for the purposes of the Fund;
(c) the amount in the Unpaid Dividend Account of companies transferred to the
Fund under sub-section (5) of section 124;
(d) the amount in the general revenue account of the Central Government which
had been transferred to that account under sub-section (5) of section 205A of the
Companies Act, 1956, as it stood immediately before the commencement of the
Companies (Amendment) Act, 1999, and remaining unpaid or unclaimed on the
commencement of this Act;
(e) the amount lying in the Investor Education and Protection Fund under section
205C of the Companies Act, 1956;
(f) the interest or other income received out of investments made from the Fund;
(g) the amount received under sub-section (4) of section 38;
(h) the application money received by companies for allotment of any securities
and due for refund;
(i) matured deposits with companies other than banking companies;
(j) matured debentures with companies;
(k) interest accrued on the amounts referred to in clauses (h) to (j);
(l) sale proceeds of fractional shares arising out of issuance of bonus shares,
merger and amalgamation for seven or more years;
(m) redemption amount of preference shares remaining unpaid or unclaimed for
seven or more years; and
(n) such other amount as may be prescribed:
Provided that no such amount referred to in clauses (h) to (j) shall form part of the Fund
unless such amount has remained unclaimed and unpaid for a period of seven years from the
date it became due for payment.
(3) The Fund shall be utilised for—
(a) the refund in respect of unclaimed dividends, matured deposits, matured
debentures, the application money due for refund and interest thereon;
(b) promotion of investors’ education, awareness and protection;
(c) distribution of any disgorged amount among eligible and identifiable applicants
for shares or debentures, shareholders, debenture-holders or depositors who have
suffered losses due to wrong actions by any person, in accordance with the orders
made by the Court which had ordered disgorgement;
(d) reimbursement of legal expenses incurred in pursuing class action suits
under sections 37 and 245 by members, debenture-holders or depositors as may be
sanctioned by the Tribunal; and
(e) any other purpose incidental thereto,
in accordance with such rules as may be prescribed:
Provided that the person whose amounts referred to in clauses (a) to (d) of sub-section (2)
of section 205C transferred to Investor Education and Protection Fund, after the expiry of the
period of seven years as per provisions of the Companies Act, 1956, shall be entitled to get refund
out of the Fund in respect of such claims in accordance with rules made under this section.
Explanation.—The disgorged amount refers to the amount received through
disgorgement or disposal of securities.
(4) Any person claiming to be entitled to the amount referred in sub-section (2) may
apply to the authority constituted under sub-section (5) for the payment of the money
(5) The Central Government shall constitute, by notification, an authority for
administration of the Fund consisting of a chairperson and such other members, not exceeding
seven and a chief executive officer, as the Central Government may appoint.
(6) The manner of administration of the Fund, appointment of chairperson, members
and chief executive officer, holding of meetings of the authority shall be in accordance with
such rules as may be prescribed.
(7) The Central Government may provide to the authority such offices, officers,
employees and other resources in accordance with such rules as may be prescribed.
(8) The authority shall administer the Fund and maintain separate accounts and other
relevant records in relation to the Fund in such form as may be prescribed after consultation
with the Comptroller and Auditor-General of India.
(9) It shall be competent for the authority constituted under sub-section (5) to spend
money out of the Fund for carrying out the objects specified in sub-section (3).
(10) The accounts of the Fund shall be audited by the Comptroller and Auditor-
General of India at such intervals as may be specified by him and such audited accounts
together with the audit report thereon shall be forwarded annually by the authority to the
(11) The authority shall prepare in such form and at such time for each financial year as
may be prescribed its annual report giving a full account of its activities during the financial
year and forward a copy thereof to the Central Government and the Central Government shall
cause the annual report and the audit report given by the Comptroller and Auditor-General of
India to be laid before each House of Parliament.
126.Right to dividend, rights shares and bonus shares to be held in abeyance pending registration of transfer of shares.
Where any instrument of transfer of shares has been delivered to any company
for registration and the transfer of such shares has not been registered by the company, it
shall, notwithstanding anything contained in any other provision of this Act,—
(a) transfer the dividend in relation to such shares to the Unpaid Dividend
Account referred to in section 124 unless the company is authorised by the registered
holder of such shares in writing to pay such dividend to the transferee specified in
such instrument of transfer; and
(b) keep in abeyance in relation to such shares, any offer of rights shares under
clause (a) of sub-section (1) of section 62 and any issue of fully paid-up bonus shares
in pursuance of first proviso to sub-section (5) of section 123.
127.Punishment for failure to distribute dividends.
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
Provided that no offence under this section shall be deemed to have been
(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