Section 123 of the Companies Act, 2013
Section 123 of the Companies Act, 2013 deals with the Declaration of Dividend by a company.
📜 Section 123 – Declaration of Dividend
This section lays down the conditions, sources, and procedures for declaring and paying dividends by companies.
✅ Key Provisions:
Sources of Dividend:
A company can declare or pay dividends only:
(a) Out of the profits of the current financial year after providing for depreciation.
(b) Out of the accumulated profits of previous financial years (transferred to free reserves), after providing for depreciation.
(c) Out of both (a) and (b) combined.
Depreciation:
The company must provide for depreciation as per Schedule II of the Act before declaring dividend.
Transfer to Reserves (Optional):
Companies may voluntarily transfer a portion of profits to reserves before declaring dividend.
Earlier under Companies Act, 1956, it was mandatory. Now, it is optional.
Restrictions:
A company cannot declare dividend if it has defaulted in:
Repayment of deposits or interest thereon,
Redemption of debentures or preference shares,
Repayment of any term loan to banks/FIs, or
Statutory dues to employees.
Interim Dividend:
The Board may declare interim dividend during the financial year out of surplus in the profit and loss account or profits of the current year.
If the company has incurred loss up to the end of the quarter immediately preceding the declaration, no interim dividend shall be declared at a rate higher than average of preceding 3 years.
Payment of Dividend:
Dividend must be paid within 30 days from the date of declaration.
If not paid within the period, the company is liable to pay interest @ 18% p.a. to the shareholder.
Unpaid Dividend Account:
If any dividend remains unpaid/unclaimed for 30 days, it must be transferred to a special Unpaid Dividend Account within 7 days.
If it remains unclaimed for 7 years, it must be transferred to the Investor Education and Protection Fund (IEPF).
🧾 Other Relevant Rules:
Governed in detail by the Companies (Declaration and Payment of Dividend) Rules, 2014.
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