Section 127 of the Companies Act, 2013
Section 127 of the Companies Act, 2013
– Punishment for failure to distribute dividends
📜 Bare Act Text (Simplified):
If a company declares a dividend but fails to pay it or post the warrant within 30 days from the declaration:
⚖️ Then the company’s officers (including directors) are liable for:
Imprisonment: Up to 2 years,
Fine: Minimum ₹1 lakh and up to ₹5 lakh per officer responsible,
Plus, the company shall pay interest at 18% per annum on the unpaid dividend amount from the 31st day onwards until it is paid.
❌ Exceptions – No penalty if:
No punishment will apply if the dividend is not paid due to:
Law not permitting the payment,
Shareholder did not provide correct bank details or address,
Shareholder gave directions but they could not be followed,
Other lawful reasons (not the company’s fault).
✅ Key Points:
| Aspect | Details |
|---|---|
| Trigger | Declared dividend not paid/dispatched within 30 days |
| Penalty | Officer-in-default: Jail up to 2 years + Fine ₹1–5 lakh |
| Interest | 18% p.a. on unpaid amount from 31st day onwards |
| Exceptions | Valid legal or shareholder-related issues |
📝 Example:
If ABC Ltd. declares ₹10/share as dividend on 1st July and fails to credit it by 31st July without a valid reason:
Each responsible director/officer can face fine + jail.
Company must pay 18% interest on the unpaid dividend until paid.
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