Declaration and Payment of Dividend-I

Chapter VIII of the Companies Act,2013 titled 'Declaration and Payment of Dividend' comprises sections 123 to 127(both inclusive)as under :

• Section 123 : Declaration of dividend
• Section 124 : Unpaid dividend account(not yet made applicable)
• Section 125 : Investor Education and Protection Fund(not yet made applicable)
• 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

Comparison of the Companies Act,2013 vis a vis the Companies Act,1956
Various changes made by section 123 of the 2013 Act as regards declaration and payment of dividend are as under:

• Transfer of profits to reserves made optional. Unlike the 1956 Act, it is not necessary to transfer specified percentage of profits to reserves where company intends to declare dividend above a specified percentage.  
• Company will have to provide entire unabsorbed losses and depreciation of earlier years before declaring dividend. Unlike the 1956 Act, it is not sufficient to provide merely lower of loss after depreciation and depreciation.
• Section 123 clearly provides that dividends shall not be declared out of reserves other than free reserves. Since revaluation reserves are excluded from definition of free reserves by section 2(43), declaration of dividends out of revaluation reserves is barred. There was no such express bar in the 1956 Act.
• If 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. Such restriction was not there in the 1956 Act.
• Sub-section (6) of section 123 provides that a company which fails to comply with sections 73 and 74 of the 2013 Act (relating to acceptance of deposits from public/members/repayment of deposits accepted before commencement of the Act) shall not, so long as such failure continues, declare any dividend on its equity shares. There was no such express bar in the 1956 Act