Highlights of Secretarial Standard on DIVIDEND (SS-3)- By CS ANJALI GORSIA

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In this piece of writing, we will cover the topic “Secretarial Standards on Dividend [SS-3] issued by issued by the Council of the Institute of Company Secretaries of India. Before we proceed to details discussion of context of [SS-3], please note the highlights of these standards so issued as stated below:

• To be effective from 01^st January, 2018.
• Adherence to these standards is “Recommendatory” not “Mandatory”.
• This Standard prescribes a set of principles in relation to the declaration and payment of Dividend and matters related thereto
• Standards are in conformity to:

1. the provisions of the Securities Contracts (Regulation) Act, 1956 and
2. the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 are applicable to listed companies

• Income Tax Provisions 1961
• Non applicability of these standards: (1) company limited by guarantee not having share capital and (2) does not deal with Dividend, if any declared by companies under liquidation.
• Please Note: The companies having licence under Section 8 of the Act are prohibited by their constitution from paying any dividend to its members. They apply the profits in promoting the objects of the company
• For the purposes of this Standard, capitalization of profits in the form of bonus shares is not Dividend. [Explanation:_____________________________________________________________________]

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DIVIDEND:
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A dividend is a payment made by a company to its shareholders, usually as a distribution of profits. When a company earns a profit or surplus, the company is able to re-invest the profit in the business (called retained earnings) and pay a proportion of the profit as a dividend to shareholders.
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The term ‘dividend’ has been defined under Section 2(35) of the Companies Act, 2013. The term “Dividend” includes any interim dividend. According to the generally accepted definition, “dividend” means the profit of a company, which is not retained in the business and is distributed among the shareholders in proportion to the amount paid-up on the shares held by them. Dividends are usually payable for a financial year after the final accounts are ready and the amount of distributable profits is available.
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It is paid on equity as well as preference share Capital of company provided; “Preference Shareholder” means a holder of such shares which carry a preferential right, in respect of payment of Dividend, of a fixed amount or an amount calculated at a fixed rate and in respect of capital, to repayment of capital.
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Following terms are defined, which are used in the standards issued:
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“Final Dividend” means the Dividend recommended by the Board of Directors and declared by the Members at an Annual General Meeting.  . “Interim Dividend” means the Dividend declared by the Board of Directors.  . Please note: [Dividend for a financial year of the company (which is called ‘final dividend’) are payable only if it is declared by the company at its annual general meeting on the recommendation of the Board of directors. This constitutes an item of ordinary business to be transacted at every annual general meeting  . Sometimes dividends are also paid by the Board of directors between two annual general meetings without declaring them at an annual general meeting (which is called ‘interim dividend’). However, as a measure of good practice, payment of Interim Dividend should be recorded at the Annual General Meeting.  . . Declaration of Dividend: .       Dividend shall be declared only on the recommendation of the Board, made at a meeting of the Board.       Where a company has an Audit Committee, this Committee shall consider the annual financial statements before submission to the Board       Dividend shall be declared only at an Annual General Meeting.

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DECLARATION OF DIVIDEND OUT OF PROFITS: These standard is articulated in line with the provisions of section 123(1) (a) of the Companies Act, 2013 which provides for following thing;

• Dividend to be declared out of the profits of the company for that year or out of the profits of the company for any previous financial.
• After providing for depreciation in accordance with the provisions of Schedule II to the Act and remaining undistributed, or out of both.
• previous losses and depreciation not provided in previous year are set off against profit of the company of the current year the loss or depreciation

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DECLARATION OF DIVIDEND OUT OF RESERVES: In a year in which the profits are inadequate or there are no profits, the company may declare Dividend out of Free Reserves subject to the fulfilment of the conditions as prescribed in Rule 3 of Companies (Declaration and Payment of Dividend) Rules, 2014.
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Please note: No Interim Dividend is declared in case the profits are inadequate or there are no profits. Only “final dividend”, recommended by board and declared in Annual General Meeting.
DECLARATION OF DIVIDEND: Out of the money provided by Central or State Government for payment of dividend in pursuance of guarantee given by that, if any
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DIVIDEND NOT TO BE DECLARALED FROM FOLLOWING SOURCES:

• Securities Premium Account or
• the Capital Redemption Reserve or
• Revaluation Reserve or Amalgamation Reserve or
• out of profits on re-issue of forfeited shares or
• out of profits earned prior to incorporation of the company;

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RESTRICTIONS ON DECLARATION OF DIVIDEND:

• it has defaulted in redemption of debentures or payment of interest thereon or creation of debenture redemption reserve,
• it has defaulted in redemption of preference shares or creation of capital redemption reserve,
• it has defaulted in payment of dividend declared in the current or previous financial year(s), or
• it has defaulted in repayment of any term loan to a bank or financial institution or interest thereon, till such time the default is subsisting

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PAYMENT & MANNER OF PAYMENT OF DIVIDEND:

• Dividend shall be deposited in a separate bank account within 5 days from the date of declaration. [Section 123(4)]
• To be paid within 30 days of declaration. (includes holidays)
• Amount deposited to be used only for said purpose.

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Manner: In line with section 123 (5): Dividend shall be paid in cash and not in kind

• In cash
• In Cheque
• In warrant

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[The cheque or warrant shall be sent to the registered address of the Member and, in the case of joint holders, to the registered address of the member named first in the Register of Members or to such person or to such address as the Member or the joint holders have directed, in writing In case of payment of dividend through warrant or cheque payable at par, if the amount of dividend exceeds one thousand and five hundred rupees, the company shall ensure to despatch such dividend warrant or cheque either by speed post or registered post to the concerned Member at his registered address A cheque or warrant for payment of Dividend shall be valid for a period of three months from the date of issue If remain unpaid, a fresh instrument shall be issued in lieu thereof, within fifteen days of the receipt of a valid request in this regard for again next three month. Duplicate Cheque or warrant In case of defaced, torn or decrepit to be issued only after obtaining requisite indemnity/ declaration from the concerned member and after ascertaining the encashment status of the original Dividend cheque or warrant. Particulars of every fresh/ duplicate cheque or warrant issued by the company shall be entered in a Register of Dividend Warrants. The Dividend cheque or warrant shall be accompanied by a statement in writing showing required prescribed details.

• Any Electronic Mode approved by RBI:[ Where Dividend is remitted through electronic mode, , the company shall send to the member, a statement in writing showing the amount of Dividend paid]

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TREATMENT OF UNPAID DIVIDEND:
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The roots of this concept, which is arising from Section 124 of the Companies Act, 2013: “Unpaid Dividend” which provides for transfer of unpaid/unclaimed dividend i.e dividend which is not paid or claimed within 30 days from its date of declaration, then the company within 7 days shall transfer such amount to a special account namely “Unpaid Dividend Account” which will be opened by Company in a schedule bank as per section 124(1) of the Act, 2013.
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Within 90 days of transferring such amount to “Unpaid Dividend Account”, statement containing details of Members will be prepared.
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Such statement shall be uploaded on the website of the company, if any, and also on the website specified by the Central Government for this purpose.
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Such statement shall remain on the website(s) till such time the unpaid or unclaimed Dividend is transferred to the Fund.
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Transfer to Investor Education and Provident Fund:
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Further any amount transferred to “Unpaid Dividend Account” remains unpaid or unclaimed for a period of 7 years from date of transfer, and then as per section 124 (5) same shall be transferred to ‘Investor Education and Provident Fund”, a fund established by Central Government within thirty days from the expiry of seven years and ensure compliance therein. Further any interest earned on the Unpaid Dividend Account shall also be transferred to the Investor Education and Protection Fund
Before transferring such amount: “The company shall intimate the concerned Members individually of the amount of Dividend remaining unclaimed or unpaid which is liable to be transferred to the Fund and advise the Members to claim such amount of Dividend from the company before such transfer”
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 At last, pursuant to the provisions of section 124 (6) of the Companies Act, 2013 read with the IEPF Rules, 2016 as amended from time to time, the Company is mandated to transfer all the shares in the name of Investor Education and Provident Fund in respect of which dividends .have not been paid or claimed for seven consecutive years or more. (Refer another article on link provided for detailed process and recent amendments related thereto.)https://anjalics.blogspot.com/2018/01/transfer-of-shares-to-iepf-authority.html
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REVOCATION:
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Dividend, once declared, becomes a debt and shall not be revoked, mandatory to be paid.
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DISCLOSURES OF DIVIDEND DECLARED:

• Balance Sheet: Notes to Accounts and under Current liabilities Head
• Board Report: The amount of interim dividend, if any, paid during the financial year and final Dividend recommended by the Board of directors. [Section 134(3)(k)]
• Annual Report: (i) disclose the total amount lying in the Unpaid Dividend Account of the company in respect of the last seven years. (ii) The amount of Dividend, if any, transferred by the company to the Investor Education and Protection Fund during the year shall also be disclosed

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PRESERVATION OF RECORDS:

• Dividend cheques or warrants returned by the Bank, after payment thereof, and the Dividend Registers shall be preserved by the company for a period of eight years.
• Where the company has given an undertaking to the Bank for preservation or safe keeping of paid Dividend cheques or warrants for a specified period, the said instruments shall be preserved for such specified period or eight years from the date of the instrument, whichever is longer.
• Records to be destroyed after approval of Board or in accordance with policy.

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WRITTEN BY: CS ANJALI GORSIA, NAGPUR