In an earlier post here, we have discussed provisions related to dividend under the Companies Act, 2013. Now we have the Companies (Declaration and Payment of Dividend) Rules 2014 as notified on 31st March 2014 for discussion.
These Rules explains procedure under Section 123 of the Companies Act, 2013 and need to be read with the Section 123. According to Second and Third Proviso to sub – section of Section 123; where a company has no adequate profit or any profit in a financial year or any accumulated profit to distribute as dividend, it may declare dividend out of reserves in accordance with the rules made by the government. The company may pay dividend only from free reserves, not from any other reserves.
Now, Rule 3 of the Companies (Declaration and Payment of Dividend) Rules 2014 makes rules for declaration of dividend out of reserve.
In the event of adequacy or absence of profits in any year, a company may declare dividend out of surplus subject to the fulfillment of the following conditions, namely:-
(1) The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the three years immediately preceding that year. However, this sub-rule shall not apply to a company, which has not declared any dividend in each of the three preceding financial year.
(2) The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement.
(3) The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividend is declared before any dividend in respect of 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 as appearing in the latest audited financial statement.
(5) No company shall declare dividend unless carried over 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, 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.
UPDATE: This provision has been “proposed to be amended” to be in force from the date of its publication in Official Gazettee and I have not found it in Gazettee until 30th June 2014 to read:
“No company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company of the current year.”
Reader may enlighten me, in case found copy in Official Gazettee.
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