{"id":5954,"date":"2026-05-13T11:12:16","date_gmt":"2026-05-13T11:12:16","guid":{"rendered":"https:\/\/digiwic.in\/spgindia\/?p=5954"},"modified":"2026-05-13T11:12:16","modified_gmt":"2026-05-13T11:12:16","slug":"e9-dividend","status":"publish","type":"post","link":"https:\/\/digiwic.in\/spgindia\/e9-dividend\/","title":{"rendered":"E9 Dividend"},"content":{"rendered":"

DECLARATION AND PAYMENT OF DIVIDEND<\/strong><\/p>\n

The declaration of dividend is not just about distributing profits\u2014it reflects a company\u2019s financial discipline and commitment to good governance. Every step, from determining the source of profits to depositing the declared amount in a separate bank account within timelines, is closely regulated and leaves little room for procedural lapses.<\/p>\n

Sections 123 to 127 of the Companies Act, 2013, along with the applicable provisions of the SEBI (LODR) Regulations, lay down a structured framework governing the declaration, payment and transfer of dividends. In practice, even seemingly minor delays\u2014such as a one-day lapse in depositing the dividend amount\u2014have invited regulatory action and penalties on companies and their officers.<\/p>\n

In this edition, we break down the key compliance requirements around dividend declaration and payment, supported by recent enforcement actions, to underline why strict and timely compliance is not just advisable, but essential.<\/p>\n

Key Compliance Requirement under the Act<\/h3>\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Section 123<\/strong><\/td>\nCompliance Mandate<\/strong><\/td>\n<\/tr>\n
(1)<\/strong><\/p>\n

Source of Dividend<\/strong><\/td>\n

No\u00a0dividend<\/a>\u00a0shall be declared or paid by a\u00a0company<\/a>\u00a0for any\u00a0financial year<\/a>\u00a0except:<\/p>\n

 <\/p>\n

a)\u00a0 Out of the profits of the company for that year<\/strong>, after providing for depreciation in accordance with Schedule II; or<\/p>\n

b)\u00a0 Out of profits of previous financial years remaining undistributed<\/strong>, after providing for depreciation; or<\/p>\n

c)\u00a0 Out of both<\/strong>; or<\/p>\n

d)\u00a0 money provided by the Central Government or a State Government<\/strong> for payment of dividend pursuant to a guarantee given by such Government.<\/p>\n

 <\/p>\n

In computing profits any amount representing unrealised gains, notional gains or revaluation of assets and any change in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded<\/em><\/strong>.<\/em><\/strong><\/p>\n

 <\/p>\n

Before declaring dividend in any FY, the company may transfer such percentage of profits for that FY to reserves as it considers appropriate.<\/strong><\/p>\n

In the event of inadequacy or absence of profits in any year, a company may declare dividend out of free reserves subject to the fulfillment of the following conditions:<\/p>\n

 <\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the 3 years immediately preceding that year: Provided\u00a0that this shall not apply to a company, which has not declared any dividend in each of the 3 preceding f. y.<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The total amount to be drawn from such accumulated profits shall not exceed 1\/10th<\/sup> of the sum of its PSC and FR as appearing in the latest audited financial statement.<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The amount so drawn shall first be utilised to set off the losses incurred in the f. y. in which dividend is declared before any dividend in respect of equity shares is declared.<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The balance of reserves after such withdrawal shall not fall below 15% of its PSC capital as appearing in the latest audited financial statement.<\/p>\n

 <\/p>\n

Further, no dividend shall be declared unless carried forward previous losses and depreciation not provided in earlier years are first set off against the profits of the current year.<\/strong><\/td>\n<\/tr>\n

(2) <\/strong><\/p>\n

Depreciation<\/strong><\/td>\n

Depreciation must be provided in accordance with Schedule II<\/strong> before the declaration or payment of dividend.<\/p>\n

 <\/td>\n<\/tr>\n

(3) I<\/strong>nterim Dividend<\/strong><\/td>\nThe\u00a0BODs<\/a>\u00a0of a\u00a0company<\/a>\u00a0may declare interim\u00a0dividend<\/a>\u00a0during any\u00a0f. y.<\/a> or at any time during the period from closure of\u00a0f.y.<\/a>\u00a0till holding of the AGM:<\/p>\n

 <\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 out of the surplus in the p&l account or<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 out of profits of the\u00a0f.y.<\/a>\u00a0for which such interim\u00a0dividend<\/a>\u00a0is sought to be declared; or<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 out of profits generated in the\u00a0f.y.<\/a>\u00a0till the quarter preceding the date of declaration of the interim dividend:<\/p>\n

 <\/p>\n

In case the\u00a0company<\/a>\u00a0has incurred loss during the current\u00a0f.y.<\/a>\u00a0up to the end of the quarter immediately preceding the date of declaration of interim\u00a0dividend<\/a>, such interim\u00a0dividend<\/a>\u00a0shall not be declared at a rate higher than the average\u00a0dividends<\/a>\u00a0declared by the\u00a0company<\/a>\u00a0during the immediately preceding 3\u00a0f.y.<\/td>\n<\/tr>\n

(4) <\/strong><\/p>\n

Separate bank Account<\/strong><\/td>\n

The amount of dividend, including interim dividend, shall be deposited in a separate bank account with a scheduled bank within five days of declaration<\/strong>.<\/td>\n<\/tr>\n
\u00a0(5) <\/strong><\/p>\n

\u00a0<\/strong><\/p>\n

Mode of Payment<\/strong><\/td>\n

Dividend can be paid only to the registered shareholder of the share, or as directed by them or to their banker, and it must be paid only in cash.<\/p>\n

 <\/p>\n

Nothing in this section stops a company from using its profits or reserves to issue fully paid bonus shares or to pay unpaid amounts on shares held by members.<\/p>\n

 <\/p>\n

Any cash dividend can be paid to the entitled shareholder by cheque, warrant, or electronic mode.<\/td>\n<\/tr>\n

(6)<\/strong> Restriction for <\/strong><\/p>\n

Deposit Default<\/strong><\/td>\n

 <\/p>\n

 <\/p>\n

A\u00a0company<\/a>\u00a0which fails to comply with the provisions of\u00a0sections 73<\/a>\u00a0and\u00a074<\/a>\u00a0shall not, so long as such failure continues, declare any\u00a0dividend<\/a>\u00a0on its equity shares.<\/p>\n

 <\/p>\n

 <\/p>\n

 <\/td>\n<\/tr>\n

Section 124: Unpaid Dividend Account<\/strong><\/td>\n<\/tr>\n
(1) <\/strong><\/p>\n

Transfer of Unpaid Dividend to Unpaid Dividend Account<\/strong><\/td>\n

If a declared dividend is not paid or claimed within 30 days, the company must transfer the unpaid amount within the next 7 days to a special bank account called the Unpaid Dividend Account.<\/td>\n<\/tr>\n
(2)<\/strong><\/p>\n

Preparation of Statement of Unpaid Dividend<\/strong><\/td>\n

Within 90 days of transferring the amount to the Unpaid Dividend Account, the company must prepare a statement of shareholders (with names, last known addresses, and unpaid dividend amounts) and publish it on its website and any government-approved website.<\/td>\n<\/tr>\n
(5)<\/strong><\/p>\n

Transfer of Unclaimed Amount to IEPF<\/strong><\/td>\n

If the amount in the Unpaid Dividend Account remains unclaimed for 7 years, the company must transfer it (with interest, if any) to the IEPF and submit the required details, after which the authority issues a receipt.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015<\/em><\/strong><\/p>\n\n\n\n\n\n\n\n\n
Regulation<\/strong><\/td>\nCompliance Mandate<\/strong><\/td>\n<\/tr>\n
29<\/strong><\/td>\nA listed entity is required to give prior intimation of at least two working days<\/strong> (excluding the date of intimation and the date of the meeting) to the stock exchange about the Board Meeting in which declaration or recommendation of dividend or passing over of dividend<\/strong> is proposed to be considered.<\/td>\n<\/tr>\n
30<\/strong><\/td>\nRegulation 30 read with Schedule III treats dividend declaration or recommendation as a material event. Accordingly, the outcome of the Board Meeting, including dividend details, must be disclosed to the stock exchanges.<\/td>\n<\/tr>\n
42<\/strong><\/td>\nRegulation 42<\/strong> requires a listed entity to intimate the record date for dividend<\/strong> to stock exchanges with at least three working days\u2019 prior notice<\/strong> (excluding intimation and record date), ensuring identification of eligible shareholders.<\/td>\n<\/tr>\n
43<\/strong><\/p>\n

\u00a0<\/strong><\/td>\n

Dividend must be declared and disclosed on a per share basis<\/strong>. Further, unclaimed dividends cannot be forfeited<\/strong> before the expiry of the statutory claim period, and any such forfeiture, if made, must be reversed in appropriate cases.<\/td>\n<\/tr>\n
43A <\/strong><\/p>\n

\u00a0<\/strong><\/td>\n

The top 1000 listed entities based on market capitalization shall formulate a dividend distribution policy which shall be disclosed on the website of the listed entity and a web-link shall also be provided in their annual reports.<\/p>\n

 <\/p>\n

The dividend distribution policy shall include the following parameters:<\/p>\n

 <\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Circumstances for dividend declaration \/ non-declaration<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Financial parameters for dividend<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Internal and external factors<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Utilisation of retained earnings<\/p>\n

\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Parameters for different share classes<\/p>\n

 <\/p>\n

Any additional parameters or changes in the dividend distribution policy must be disclosed with reasons in the Annual Report and on the website.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Dividend Compliance in Practice \u2013 Key Regulatory Learnings<\/u><\/strong><\/p>\n

Dividend compliance may seem like a routine corporate activity, but it often has serious regulatory implications. The cases discussed show that even small procedural lapses\u2014such as delays in depositing the dividend amount\u2014can lead to monetary penalties and liability for officers in default.<\/p>\n\n\n\n\n\n\n\n
Company<\/strong><\/td>\nDate of Order & Authority<\/strong><\/td>\nProvision Violated<\/strong><\/td>\nNature of Non-Compliance<\/strong><\/td>\nPenalty (includes penalty for other violations)<\/strong><\/td>\n<\/tr>\n
Multi Commodity Exchange of India <\/strong><\/p>\n

Limited<\/strong><\/td>\n

August 8, 2024, ROC (Mumbai)<\/td>\nSection 123(4)<\/td>\nDelay of 1 day in depositing dividend amount in a sperate account maintained with a Scheduled Bank. (delay attributed to national holiday)<\/td>\n–\u00a0 Penalty of \u20b911,000 imposed on the company<\/p>\n

–\u00a0 Penalty of \u20b9 11,000 each imposed on CEO, CFO & CS of the company.<\/td>\n<\/tr>\n

Ipsen Technologies Private Limited<\/strong><\/td>\nJanuary 04, 2023, ROC (West Bengal)<\/td>\nSection 123(3)<\/td>\nInterim dividend was declared partly out of free reserves despite losses<\/strong>, which is not permitted under Section 123(3).<\/td>\n–\u00a0 Penalty of \u20b910,000 imposed on the company.<\/p>\n

–\u00a0 Penalty of \u20b910,000 each on three directors of the company.<\/td>\n<\/tr>\n

Vedanta Limited (earlier known as Cairn India Limited)<\/strong><\/p>\n

\u00a0<\/strong><\/td>\n

March 12, 2024 \u2013 SEBI<\/td>\nSection 127 of the Companies Act, 2013, Reg 4(1) (g) and 4(2)(c)(i) of LODR Regulations.<\/td>\nDelay\/ non-payment of declared dividend to shareholder, leading to violation of Section 127 and LODR principles on fairness and compliance.<\/td>\nViolation established; no monetary penalty imposed\u2014SEBI issued directions only.<\/p>\n

 <\/p>\n

Directors restrained from accessing securities market for 2 months<\/p>\n

 <\/td>\n<\/tr>\n

\u00a0<\/strong><\/p>\n

Mediaone Global Entertainment Ltd.<\/strong><\/td>\n

Feb 27, 2026, SEBI<\/td>\nSection 127 of Companies Act, 2013<\/td>\nDeclared dividend was not paid to shareholders. <\/strong>Amount remained unpaid despite declaration<\/strong>, without valid justification.<\/td>\nNo monetary penalty imposed. <\/strong>SEBI issued regulatory directions under Sections 11 & 11B.<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Insight<\/strong><\/p>\n

Recent orders indicate that even in cases arising from voluntary applications<\/strong>, dividend-related non-compliances are not taken lightly. Minor lapses like delay in depositing dividend (Section 123(4)) and incorrect declaration sources (Section 123(3)) have still resulted in penalties on the company and KMPs. Further, instances of delay or non-payment of declared dividend (Section 127 and LODR) have led to regulatory directions, including restrictions on directors. These cases highlight that dividend compliance demands strict adherence to timelines, correct identification of sources, and strong internal controls, as even technical lapses can attract consequences.<\/p>\n

CS Suresh Pandey<\/strong><\/p>\n

Practising Company Secretary<\/strong><\/p>\n

SPG & Associates<\/strong><\/p>\n

9968300649
\n<\/strong>suresh@spgindia.co.in<\/strong><\/a><\/p>\n

Coming Up in Edition<\/strong>: 10<\/strong> – ESOP Compliance under Companies Act, 2013 and SEBI SBEB Regulations \u2013 Key Non-Compliances and Governance Risks<\/strong><\/p>\n

\n

\u00a0<\/em>Disclaimer: This content is intended solely for research and knowledge-sharing purposes among professionals, based on information available in the public domain. It is not intended to malign any individual or entity, nor should it be construed as a solicitation or used for any commercial or promotional purpose. The views expressed do not constitute a legal opinion or professional advice. While utmost care has been taken to ensure the accuracy of the content, no responsibility is accepted for any errors or omissions. Readers are advised to verify the information independently from official and original sources before taking any action based on the same. <\/em><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

DECLARATION AND PAYMENT OF DIVIDEND The declaration of dividend is not just about distributing profits\u2014it reflects a company\u2019s financial discipline and commitment to good governance. Every step, from determining the source of profits to depositing the declared amount in a separate bank account within timelines, is closely regulated and leaves little room for procedural lapses. […]<\/p>\n","protected":false},"author":1,"featured_media":4389,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[34],"tags":[],"year_tax":[],"month_tax":[],"class_list":["post-5954","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-audit"],"acf":[],"featured_image_src":{"landsacpe":["https:\/\/digiwic.in\/spgindia\/wp-content\/uploads\/2025\/01\/accounting-process-3.jpg",443,260,false],"list":["https:\/\/digiwic.in\/spgindia\/wp-content\/uploads\/2025\/01\/accounting-process-3.jpg",443,260,false],"medium":["https:\/\/digiwic.in\/spgindia\/wp-content\/uploads\/2025\/01\/accounting-process-3-300x176.jpg",300,176,true],"full":["https:\/\/digiwic.in\/spgindia\/wp-content\/uploads\/2025\/01\/accounting-process-3.jpg",443,260,false]},"_links":{"self":[{"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/posts\/5954","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/comments?post=5954"}],"version-history":[{"count":1,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/posts\/5954\/revisions"}],"predecessor-version":[{"id":5955,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/posts\/5954\/revisions\/5955"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/media\/4389"}],"wp:attachment":[{"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/media?parent=5954"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/categories?post=5954"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/tags?post=5954"},{"taxonomy":"year_tax","embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/year_tax?post=5954"},{"taxonomy":"month_tax","embeddable":true,"href":"https:\/\/digiwic.in\/spgindia\/wp-json\/wp\/v2\/month_tax?post=5954"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}