INTERIM DIVIDEND - KNOWLEDGE BITE

A.    GOVERNING PROVISIONS:

·         Section 123 of the Companies Act, 2013

·         Companies (The Companies (Declaration and Payment of Dividend) Rules, 2014)

·         Secretarial Standards 3 issued by the Institute of Company Secretaries of India. (“SS-3”)

·         SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 

B.     MEANING OF DIVIDENDS:

·    Dividend: Section 2(35) of the Companies Act, 2013 read with SS-3 outlines that dividends shall mean such amounts appropriated out of the profits of the company or from the free reserves of the company when permitted, which shall be distributed to the members of the company as and when declared / recommended by the board of directors and as subsequently approved by the shareholders of the company.

·    Interim Dividend: Section 123(3) read with SS-3 states that Interim dividends shall be such sums distributed to the shareholders which shall be approved by the board of directors of the company.

·      Final Dividend: Final Dividend means sums distributed to the shareholders as recommended by the Board of Directors and declared by the Members at an Annual General Meeting (“AGM”).

C.    INTERIM DIVIDEND – WHEN CAN THE SAME BE DECLARED?

·     The operative provision of Section 123(3) stipulates that the board of directors of a company may declare interim dividend:

a.      During any financial year

b.     At any time during the period from closure of financial year till the holding of AGM

D.    COMPLIANCES PRIOR TO DECLARATION OF INTERIM DIVIDEND:

·    The board of directors through the financial results for the period for which interim dividend is sought to be declared have to ascertain the financial position of the company to declare interim dividends.

·     The board of directors have to ensure that interim dividends are declared only out of the following enlisted under Section 123(3) of the Companies Act, 2013:

a.      Surplus in profit and loss account or

b.    Out of profits for financial year for which such interim dividend is sought to be declared (After financial year closure till the date of AGM) or

c.    Out of profits generated in the financial year till the quarter preceding the date of declaration the interim dividend. (At any point of time during the financial year)

d.      Pursuant to clause 1.2.2 of SS-3, interim dividends shall not be declared out of free reserves

·     In case, a company has incurred loss during the current financial year upto the end of the quarter, immediately preceding the date of declaration of Interim Dividend then such dividends not be declared at a rate higher than average Dividend declared during the immediately preceding three financial years.

·    The board of directors shall ensure that the company has complied with the provisions with respect to acceptance of deposits under Section 73 and 74 of the Companies Act, 2013, contrary / failing which the company shall be prohibited to declare interim dividends on its equity shares.

·      The company shall open a bank account with scheduled bank for the purpose of payment of interim dividends. Scheduled banks shall mean such banks enlisted under the Second Schedule of Reserve Bank of India Act, 1934.

·   The company shall open a special account with a scheduled bank for the purpose of transfer of unpaid / unclaimed dividends. Scheduled banks shall mean such banks enlisted under the Second Schedule of Reserve Bank of India Act, 1934.

·     Upon satisfaction of all the points mentioned hereinabove, the company shall issue a notice calling for the meeting of board of directors as per stipulated timeline under Secretarial Standards-1 (“SS-1”) / convene the meeting of board of directors on a shorter notice for declaration of interim dividends.

·    The board, if not found feasible to conduct a meeting of board for the purpose of declaration of interim dividend is empowered to seek approval of the board through resolution by circulation under the provisions of Section 175 of the Companies Act, 2013 read with SS-1.

·    In case the company is a listed entity, then pursuant to Regulation 29 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the company has to issue a prior intimation to the stock exchanges in which it has listed its securities at least two working days before the scheduled board meeting excluding the date of intimation and the date of meeting. 

·     In case, the company is a listed entity, then pursuant to Regulation 42 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the company is required to fix a record date for the purpose of declaration of interim dividends. Additionally the company is required to intimate the stock exchanges on record date by giving a notice in advance of at least seven working days prior to the record date. The listed entity shall declare interim dividend at least five working days (excluding the date of intimation and the record date) before the record date fixed for the purpose. 

E.     COMPLIANCES POST THE DECLARATION OF INTERIM DIVIDEND AT THE MEETING OF BOARD OF DIRECTORS: 

·     In case the company is a listed entity, then in terms of Pursuant to Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 read with Schedule III of the said regulations, the entity shall within 30 minutes from the conclusion of the meeting in which interim dividends are declared, shall intimate the stock exchanges on the dividends declared.

·      The company shall deposit the amount of interim dividends declared at the meeting of the board of directors within five days from the date of the board meeting in the scheduled bank account opened for the purpose of payment of dividends.

·      In case interim dividends declared by the board has not been paid or claimed within thirty days from the declaration to the shareholders entitled for receiving the same, the company shall within 7 days from the expiry after the said period of 30 days, transfer the total amount of dividend which remains unpaid or unclaimed to a special account which shall be recognized as “Unpaid Dividend Account”).

·    Within 90 days of transfer to the unpaid dividend account, the company shall prepare a statement which shall contain the following details of members who have not claimed the dividends / dividends remain unpaid to such members:

a.       Name of the members

b.      Last known address

c.       Amount of unpaid / unclaimed dividends

·     Any member intending to claim such dividends transferred to unpaid dividends shall apply to the company to claim such dividends.

·   The company shall ensure that the dividends transferred to the unpaid dividend account and remaining unpaid / unclaimed for a period of seven consecutive years shall be transferred to the Investor Education and Protection Fund. The company shall further ensure that all the shares in respect to such dividends remaining unpaid / unclaimed for a period of seven consecutive years shall also be transferred to the Investor Education and Protection Fund.

·    In case the company is a listed entity, then in terms of Regulation 12 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 read with Schedule I to the said regulations, such entity shall:

a.       Either directly or

b.      Through its RTA or

c.      Through its depositories

use electronic clearing services (local, regional or national), direct credit, real time gross settlement, national electronic funds transfer etc. for making payment of interim dividends. Pursuant to the proviso to Regulation 12 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, in case the listed entity is unable to use electronic facility for making payment of interim dividends, then ‘payable-at-par’ warrants or cheques may be issued.

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