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Room No.6, 4 th Floor, Commerce House 2A, Ganesh Chandra Avenue, Kolkata 700013 Connect : (033) 3028 8955-57; (033) 3002 5630-33; 98310 99551

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Presentation on theme: "Room No.6, 4 th Floor, Commerce House 2A, Ganesh Chandra Avenue, Kolkata 700013 Connect : (033) 3028 8955-57; (033) 3002 5630-33; 98310 99551"— Presentation transcript:

1 Room No.6, 4 th Floor, Commerce House 2A, Ganesh Chandra Avenue, Kolkata Connect : (033) ; (033) ; Visit : Companies Act, 2013 Chapter VIII By CS Mamta Binani Past Chairperson (Year 2010), EIRC of ICSI Practising Company Secretary For B.B. D Bagh CA Study Circle, Kolkata dated :

2 Chapter VIII The heading of the Chapter is: ‘Declaration and Payment of Dividend’ under the Companies Act, 2013 Sections ranging from 123 to 127 Total 5 sections Out of which 1 section has been made applicable from The notified section is 127 (Punishment for failure to distribute dividends)

3 Section 123(old section 205) Declaration of dividend Dividend shall be declared/paid by a company for any FY: (a) out of the profits for that year or (b) out of the profits for any previous financial year(s) which has remained undistributed or (c) out of both or (d) out of money provided by the Govt. in case guaranteed by the Govt. All these profits has to be arrived at after providing for depreciation in accordance with section 123(2)-which mentions Schedule II (depreciation schedule)

4 Transfer to Reserves-1 st Proviso to section 123(1) In the old law, it was mentioned in section 205(2A) that before declaration, the transfer to reserves is mandatory and that it should not be exceeding 10% of its profits for that year In the new law: (a) such transfer not mandatory (because the word used is ‘may’) (b) could transfer such % of its profits for that FY as it considers appropriate

5 Decl. of Dividend out of Reserves- 2 nd Proviso to section 123(1) If a company proposes to declare dividend out of accumulated profits earned in previous years, which has been transferred by the company to the reserves Then such declaration can be made in compliance with the prescribed Rules – Draft Rule 8.1

6 Draft Rule 8.1 The following conditions will have to be fulfilled: (1) The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in 3 years immediately preceding that year; (2) The total amount to be drawn from such accumulated profits shall not exceed an amount equal to 1/10 th of the sum of its paid-up share capital and free reserves; (3) The amount so drawn shall first be utilized to set off the losses incurred in the FY before any dividend in respect of preference or equity shares is declared; (4) The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share capital.

7 Draft Rule 8.2 No company shall declare dividend unless the loss or depreciation, whichever is less, in previous years is set off against the profit of the company for the year for which dividend is declared or paid

8 Usage of Free Reserves-3 rd Proviso to section 123(1) No dividend shall be declared/paid from its reserves other than free reserves

9 Section 123(3)-Interim Dividend BOD may declare interim dividend during any FY: (a) out of the surplus in the P/L account and (b) out of the profits of the said FY The proviso mentions that if the company has incurred losses during the current FY upto the end of the quarter immediately preceding the date of declaration of interim dividend, then the rate of such interim dividend shall not be higher than the average dividends declared during the immediately preceding 3 FY’s Both the above points are NEW The old act just mentioned that the BOD may declare interim dividend and that it should be deposited in a separate bank account within 5 days of decl.-sec 205(1A)

10 Section 123(4)-Separate bank a/c The amount of final dividend The amount of interim dividend Shall be deposited in a scheduled bank In a separate account Within 5 days From the date of declaration of such dividend (comments: In the old law, section 205(1A) did not make any mention of the requirement of scheduled bank. It just mentioned, bank)

11 Section 123(5)-to whom and how Dividend to be paid by the company-to whom: (a) To the registered shareholder of such share or (b) To his order or (c) To his banker How: (a) Has to be payable in cash (which means it cannot be in kind) (b) cash means, may be paid by cheque or mentioned (c) warrant or in the (d) in any electronic mode (new inclusion) 2 nd proviso

12 Section 123(5)-1 st Proviso Capitalization of profits or reserves: 1. For issuance of fully paid up bonus shares; or 2. For paying up any amount for the time being unpaid on any shares held by the members Is not prohibited

13 Section 123(6)-New provision A company which fails to comply with the provisions of Section 73 (Prohibition on acceptance of deposits from public) and Section 74 (Repayment of deposits, etc., accepted before commencement of this Act) shall not, so long as such failure continues, declare any dividend on its equity shares Under the Companies Act, 1956, the restriction was imposed only in case of failure of redeemable preference shares accepted before the commencement of the Companies Act, 1956-this doesnot exist in the new law

14 Section 124(1)-(old Sec 205A) Unpaid Dividend Account If dividend is not paid or remained unclaimed within 30 days of date of declaration Company to transfer the same within 7 days from the date of expiry of 30 days, i.e. (30+7) To a special account Namely, ‘Unpaid Dividend Account’ To be opened in any scheduled bank

15 Section 124(2) Steps after depositing unpaid/unclaimed dividend Within 90 days of the date of transfer to unpaid dividend account- Company to prepare related statement in Form no.8.1 (Draft Rule 8.3) and place it (in pdf format) on its website, if any; and Also on any other website as CG may approve and prescribe for this purpose The statement to contain the following particulars: (a) Names of members; (b) Their last known addresses; (c) The amount of unpaid/unclaimed dividend

16 Draft Rule 8.3 Such statement to appear on the website in a prominent manner and shall be: (a) accessible free of charge; and (b) readable and made convenient for printing If any particular version of software is required for accessing the statement, a facility to download the relevant version of the software shall be provided free of cost together with such statement Along with instructions for downloading such software and contact details of a responsible official of the company who can help to open, read and print the statement

17 Draft Rule 8.3…contd Proper search facility shall, by name, be provided on the web-site to search the entries from such statement Such statement to appear year-wise Where dividend has been declared more than once in a FY, the statement to appear for each declaration of dividend Until the amount is transferred to the Investor Education and Protection Fund

18 Section 124(3) If default is made in transferring full/ part money to unpaid dividend account (as required in section 124(1)) Then on such amount which has not been transferred The company to pay p.a. The said interest shall accrue to the benefit of the members in proportion to the amount remaining unpaid to them

19 Section 124(4) Any claimant to the money transferred to the Unpaid Dividend Account May apply to the company For payment of the money claimed

20 Section 124(5) The amount which remains unpaid/ unclaimed in the company’s Unpaid Dividend Account for a period of 7 years from the date of such transfer Together with interest accrued, if any, on such amount Needs to be transferred by the company to Investor Education & Protection Fund (Draft Rule 8.4) Company to file a statement containing prescribed details to the authority which administers the Fund (in Form no.8.2-certification required) The said authority to issue a receipt evidencing the transfer

21 Draft Rule 8.4 (2) Amount to be remitted into the specified branches of State Bank of India or any other nationalized bank through which the amount can be credited to the Fund; To be remitted within a period of 30 days of such amount becoming due to be credited to the Fund; Along with a challan (in triplicate) and the Bank to return to the company 2 copies of the challan duly stamped as an acknowledgement of having received the amount; CG may permit remittance of the amount in electronic mode

22 Draft Rule 8.4 (4c) The company to keep a record consisting of: (a) name; (b)last known address; (c)amount; (d)folio number/client ID; (e)certificate number, beneficiary details etc. of the persons in respect of whom unpaid/ unclaimed amount has remained unpaid/ unclaimed for a period of 7 years and has been transferred to the Fund; The record to be kept for a period of 8 years from the date of such transfer to the said Fund and the Authority shall have the powers to inspect such records

23 Draft Rule 8.7 Any person, whose unclaimed dividend, matured deposits, proceeds of matured debentures, application money due for refund, or interest thereon, sale proceeds of fractional shares, redemption proceeds of preference shares, etc. has been transferred to the Fund May apply for refund to the Authority under clause (a) of sub-section (3) of section 125 or under proviso to sub-section (3) of section 125, by making an application in Form No. 8.4 Application to be made under his own signature or through a person holding a valid power of attorney granted by him

24 Draft Rule 8.7…contd The application for refund shall be accompanied by the following documents: (a) An indemnity bond in Form No. 8.5 (2 exceptions have been laid out where indemnity will not be required) (b) Document in support of the entitlement to the amount claimed e.g. letter from the company, dividend warrant etc. (c) A stamped advance receipt bearing his signature and signatures of two witnesses (d) Proof of identity; (e) Proof of address (f) In the case of a deceased person, his legal representative to furnish a succession certificate/ probate / letter of administration (as applicable)

25 Draft Rule 8.7…contd On receipt of the application, the authority shall verify from the records and certify whether the claimant is entitled to the money claimed by him Then the authority shall issue a payment order in Form No. 8.6 sanctioning the payment of the amount due to the claimant and issue and deliver the cheque in favour of the claimant The Authority shall, in its records, cause a note to be made of all payments A refund application to be disposed of by the Authority within 30 days from the date of receipt of the application of refund complete in all respects Any delay beyond 30 days-reasons to be recorded in writing

26 Section 124(6) All shares in respect of which unpaid/ unclaimed dividend has been transferred to the Investor Education & Protection Fund Shall also be transferred by the company To the Investor Education & Protection Fund, Suspense Account (name of the company) A statement to be also filed containing prescribed details Draft Rule 8.5: In case shares are held in electronic mode in any depository and the beneficial owner has encashed any dividend warrant during the last 7 years, such shares shall not be required to be transferred to Investor Education and Protection Fund even though some dividend warrants may not have been encashed

27 Draft Rule 8.5 Procedure for credit of shares The shares to be credited with one of the Depository Participants as may be notified by the Fund Within a period of 30 days of such shares becoming due to be transferred to the Fund For the purposes of effecting transfer of such shares, the Board shall authorise the company secretary or any other person to sign the necessary documents The company shall follow the procedure as stated in the next 2 slides (2 situations – when shares are in demat form and the other when shares are in physical form)

28 Draft Rule 8.5….contd For the purposes of effecting the transfer where the shares are dealt with in a depository: (i) the company secretary or the person authorised by the Board shall sign on behalf of such shareholders, the delivery instruction slips of the depository participants where the shareholders had their accounts, for transfer in favour of IEPF Suspense Account (name of the company) (ii) on receipt of the delivery instruction slips, the depository shall effect the transfer of shares in favour of the Fund, in its records

29 Draft Rule 8.5….contd For the purposes of effecting the transfer where the shares are held in physical form: (i) the company secretary or the person authorised by the Board shall make an application, on behalf of the concerned shareholders, to the company, for issue of duplicate share certificates (ii) on receipt of application, a duplicate certificate for each such shareholder shall be issued and it shall be stated on the face of it and be recorded in the Register maintained for the purpose, that the duplicate certificate is “Issued in lieu of share certificate no for purpose of transfer to IEPF”. Further, the word “duplicate” shall be stamped or punched in bold letters across the face of the share certificate

30 Draft Rule 8.5….contd (iii) particulars of every share certificate issued as above shall be entered forthwith in a Register of Renewed and Duplicate Share Certificates maintained in Form No. 4.3 pursuant to rule 4.3(3) (iv) after issue of duplicate share certificates, the company secretary or the person authorised by the Board, shall sign the necessary securities transfer Form No. 4.7, pursuant to section 56(1) & Rule 4.9(1), for transferring the shares in favour of the Fund (v) On receipt of the duly filled transfer forms along with the duplicate share certificates, the Board or its committee shall approve the transfer and thereafter the transfer of shares shall be effected in favour of the Fund in the records of the company

31 Draft Rule 8.5….contd The company/depository to preserve copies of the depository instruction slips, transfer deeds and duplicate certificates for its records The company to send a statement to the Fund in form 8.3 containing details of such transfer – this form will need certification The voting rights on such shares shall remain frozen until the rightful owner claims the shares All the benefits accruing on such shares e.g. bonus shares, split etc. shall also be credited to such IEPF suspense account (name of the company) If company is getting delisted, IEPF shall surrender shares on behalf of the shareholders and the proceeds realized shall be credited to the account of the shareholder (SEBI regulations)

32 Section 124(6)-Proviso Claim of shares transferred to such Fund Is permissible in the prescribed manner along with prescribed documents Claim to be made to the Investor Education & Protection Fund in accordance with Draft Rule 8.5 (9) The procedure is laid out in the next slide

33 Draft Rule 8.5(9 & 10) The claimant to approach the Fund On such approach, the Fund shall refer to the respective company for verification of the details of the claimant against the details of shares Proper verification of the claim and identity of the claimant is to be done by the company The company shall, inter alia, verify the following documents of the claimants: (i) Documents for identification (Any two of the following): PAN, Voter ID, Passport, DL, UIN (ii) Documents for verification of number of shares: Folio number/Client ID

34 Draft Rule 8.5(9) After proper verification of the claim; and The identity of the claimant by the company The Fund shall credit the shares If in demat: that which are lying with depository participant in IEPF suspense account (name of the company) to the demat account of the claimant to the extent of the claimant’s entitlement and pay the unpaid dividends If in physical: cancel the duplicate certificate and transfer the shares in favour of the claimant and pay the unpaid dividends

35 Section 124(7) Penal Provisions On company: Non compliance with any of the requirements of this section – fine of minimum Rs.5.00 lacs, maximum Rs lacs On every officer of the company who is in default: Non compliance with any of the requirements of this section – fine of minimum Rs.1.00 lacs, maximum Rs.5.00 lacs

36 Section 125 (old Sec 205C) Investor Education & Protection Fund CG to establish the fund: sub-section (1) The fund to be credited with amounts as specified in sub-section (2) The fund to be utilised as specified in sub-section (3) CG to constitute authority for administration of fund Accounts of the fund to be audited by CAG Audit Report & Accounts to be laid before parliament by CG

37 Draft Rule 8.6 The Authority may suo-motu call upon any company to pay the amount due to the Fund If any company fails to pay any amount due to the Fund, the Authority shall report the same to the CG If the company fails to comply with the directions of the Authority, the company and the officers in default shall be punishable with fine May extend to Rs.5000 and Rs.500 for every day of continuing default

38 Section 126 (old Sec 206A) Right to dividend, rights & bonus shares to be held in abeyance pending registration of transfer of shares Where an instrument of transfer of shares has been delivered to the company for registration And the transfer is not registered by the company The company to transfer the dividend in relation to such shares To the Unpaid Dividend Account (1 exception has been mentioned in the section) and Any offer of rights/ bonus shares thereto - to be kept in abeyance in relation to such shares

39 Section 127 (old Sec 207) Punishment for failure to distribute dividends Where dividend has been declared but Has not been paid or warrants remain unposted within 30 days of declaration to any entitled shareholder Every director of the company (if he is knowingly a party to the default) punishable with: fine not less than Rs.1000 per day of continuing default and imprisonment of upto 2 years And defaulting company liable to pay 18% p.a. simple interest during the defaulting period

40 Section 127-Proviso Sub-section prescribes certain circumstances where failure to distribute dividend will not be considered as an offence. They are: (a) could not be paid by reason of operation of any law (b)shareholder gave directions to company but directions cannot be complied with and that has been communicated to him (c) dispute regarding the right to receive dividend (d) dividend adjusted against any sum due, lawfully (e) the failure to pay dividend/ post warrant within the due period was not due to any default on the part of the company

41 Quick Recap Section 123: Declaration of Dividend Section 124: Unpaid Dividend Account Section 125: Investor Education & Protection Fund Section 126: Right to dividend, rights shares and bonus shares to be held in abeyance pending registration of transfer of shares Section 127: Punishment for failure to distribute dividends

42 List of Forms-Recap Form no.8.1: Statement of money lying in its Unpaid Dividend Account Form no.8.2: Statement containing details of transfer of amount to the IEPF. This form needs certification Form no.8.3: Statement containing details of transfer of shares to the IEPF, Suspense a/c (name of the company). This form needs certification Form no.8.4: Refund application form for money lying in IEPF Form no.8.5: Format for Indemnity form Form no.8.6: Issuance of payment order by the Authority towards refund of money from IEPF

43 Room No.6, 4 th Floor, Commerce House 2A, Ganesh Chandra Avenue, Kolkata Connect : (033) ; (033) ; Visit : of the Companies Act, 2013

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