1. Legal Framework

A. Companies Act, 2013

• Sec 123: Dividend only from profits, after depreciation. Board recommends, shareholders declare.
• Sec 124(1): If declared dividend not paid or claimed within 30 days, company must transfer total unpaid amount to special account called Unpaid Dividend Account opened in a scheduled bank within 7 days after expiry of 30-day payment period.
• Sec 125: After 7 years unpaid -> transfer to IEPF.
• Sec 127: Punishment for failure to distribute dividend on time - 2 years jail + fine. If shareholder gave directions for payment and company fails to communicate non-compliance, company is liable.
• Sec 123(5): Dividend to be paid by cheque / warrant / electronic mode within 30 days of declaration.

B. Banking Regulation Act, 1949

• Sec 15: No banking company shall pay dividend until all capitalized expenses (preliminary expenses, share selling commission etc.) are written off.
• RBI Master Direction on Dividend: Bank can declare dividend only if:
  • CRAR >= 11.5%, Net NPA < 6%, No RBI restrictions
  • Dividend payout ratio capped (RBI 2023 circular)
• During Moratorium / PCA / Reconstruction - RBI can ban dividend.

C. SEBI Law

• Sec 15C SEBI Act: If listed company, after being called upon by SEBI in writing to redress investor grievances which may also include non-payment of dividends, fails to redress within time specified, company liable to penalty of one lakh rupees for each day or one crore rupees whichever is less.
• SEBI LODR Reg 43: Must disclose dividend policy.

2. Types of Disputes

1. Non-payment after declaration: Debt becomes payable, shareholder can sue.
2. Failure to transfer to Unpaid Dividend Account: SEBI prosecution.
3. Bank refuses dividend due to RBI restriction vs Shareholder claims: e.g., Yes Bank AT-1 coupon which is like dividend.
4. Deemed Dividend u/s 2(22)(e) Income Tax: Loan to shareholder treated as dividend - tax dispute.
5. Dividend stripping, delayed payment, IEPF claim disputes.

3. Landmark Case Laws

A. Failure to Pay on Time - Penalty even if paid later

Case: SC - Belated payment didn't exonerate Co. - Rs 25 lakh penalty upheld: SC 159 taxmann.com 4
Where company committed default in depositing and disbursing amount of dividend declared in terms of Section 205 of 1956 Act (now Sec 123-124), prosecution launched. Supreme Court held even though entire amount due to shareholders had been paid at belated stage, non-compliance is not cured. Penalty sustained.[2024]

Principle: Dividend must be paid within 30 days. Late payment does not wipe off offence.

B. SEBI Power Ends After Payment

Case: After dividend payment SEBI cannot initiate action u/s 207 of Companies Act, 1956
Held that combined reading of Section 55(A) and Section 207 clearly indicates SEBI is vested with power to safeguard interests of shareholders in matter of non-payment of dividends and the moment dividends are paid, SEBI has no power to initiate any action against company or directors who defaulted in payment within 30 days.

Use this if you are defending company which has now paid.

C. SEBI Must Act if Company Withholds Dividend - Rs 660 Cr case

Case: SAT - Withholding of dividends, SEBI's duty to inquire under Sec 124
Company had unpaid dividend of over Rs 660.63 crores handed over to income tax authorities and SEBI refused to act. Tribunal held if company has violated provisions of Companies Act in not releasing dividend when there was no embargo upon it, it is SEBI's duty to inquire into alleged violation and if it exists to take action.

Shareholders can force SEBI to act under Sec 15C.

D. Declaration vs Payment - Directors Can Rescind Before Payment

Case: Punjab National Bank Ltd. vs Union of India (1984) and Express Newspapers
Proposition that a declaration by directors of intended dividend to be paid at some future date may be rescinded by resolution before that date arrives is firmly established. If directors declare but do not pay, there is no liability till warrant dispatched.

Important for interim dividend disputes.

E. Banking Sector - Yes Bank AT-1 Bonds Dividend-like Coupon Case (Most Important 2026)

Yes Bank AT-1 Bonds Write-off - SC 2026 INSC 1132

• Yes Bank sold AT-1 bonds carrying 12% coupon (like dividend) to retail investors despite RBI Master Circular says AT-1 Bonds are high-risk securities and must be offered only to institutional investors - mutual funds and insurance companies.
• In March 2020, RBI imposed moratorium, appointed administrator who wrote off Rs 8,415 crore AT-1 bonds as part of rescue.
• SC held: Any act performed by administrator beyond powers clothed upon him would be wholly illegal and void and he could not have assumed regulatory role of RBI and exercise power which it did not have at all to write down AT1 bonds.
• Court rapped RBI; says it stood as bystander while YES Bank operated clandestinely.
• Result: Write-off quashed, bondholders entitled to coupon again subject to RBI approval. Bank has strong shareholders' funds of ₹52,338 crore as of June-end 2026, indicating bank could meet liability from reserves.

Principle: In banking, even dividend-like instruments (AT-1 coupon) cannot be extinguished by administrator - only RBI can trigger. Mis-selling to retail violates RBI dividend distribution norms.

F. Deemed Dividend vs Liquidated Damages

Case: UTI Bank - 12% Preference Dividend Case
Assessee issued redeemable preference shares to UTI Bank carrying dividend @12% p.a. and failed to pay. Paid liquidated damages in lieu of dividend. ITAT and HC held: fact that payment took character of liquidated damages did not obliterate fact that liability to pay was on account of dividend and failure to pay dividend was breach of contract entitling UTI Bank to recover damages. Such damages not deductible as business expense because dividend itself is not.

4. Who is Liable When Bank Fails to Credit Dividend?

1. Company / Bank: Must transfer to Unpaid Dividend Account within 7 days after 30 days, else Sec 124(7) - fine Rs 1 lakh to Rs 10 lakh + interest @12%.
2. Directors: Jointly liable under Sec 127 - simple interest @18% p.a. till payment.
3. Bank where Unpaid Dividend Account held: No liability unless negligent in processing NACH.
4. SEBI: Can prosecute, but must close after payment per case law above.

5. Remedy for Investor / Bank

If you are investor not receiving dividend:

1. Complain to company + SEBI SCORES
2. After 30 days, company must show Unpaid Dividend Account proof
3. File Sec 15C complaint - SEBI penalty pressure
4. Approach IEPF Authority after 7 years
5. Consumer Forum? No - dividend is not deficiency of service, but Company Law remedy.