This article is written by Mangalakshmi Teja Veluri, pursuing Diploma in Law Firm Practice: Research, Drafting, Briefing and Client Management from LawSikho. The article has been edited by Tanmaya Sharma (Associate, LawSikho) and Smriti Katiyar (Associate, LawSikho).

Introduction 

A profit of a company is distributed among the shareholders in proportion to the amount paid up on the shares held by them. This is called Dividend. it is usually payable for a fiscal year after the final accounts are ready and the amount of distributable profit is made. If the dividend is announced and paid in the middle of a financial year, such dividend is known as an interim dividend. As per the Companies Act, 2013, the term dividend is also inclusive of interim dividend. In this article, we look at the procedure for declaration and payment of Interim Dividend.

What is a Dividend?

A dividend is said to be a distribution of a Company’s profits in the form of cash or stock to shareholders in the company as determined by the Company’s Board of Directors.

What is an Interim Dividend?

As per Section 123(3) of Companies Act 2013, the Dividend which is declared between the 2 (two) Annual General Meetings is said to be INTERIM DIVIDEND.

Interim Dividend is always declared for the current financial year.

Why is Interim Dividend Declared?

When a company performs well and gains good profits in the current Financial Year and wants to share the profits of the same financial year’s till the quarter preceding the date of declaration of interim dividend to its shareholders then they do it through Interim Dividend.

Interim Dividend can be declared from the surplus in the Profit and Loss account and out of profits of the current financial year.

If the company is in losses during the current FY, then the Rate of Dividend will be the average dividends declared by the company during the 3 immediately preceding years.

Procedure to be followed for declaration and payment of Interim Dividend by Board of Directors

1. Initiate a Board of Directors Meeting as per Section 173 and SS-1, Companies Act 2013.

1. Listed Companies will inform about Stock Exchange in advance, prior to Board Meeting in which declaration of Interim Dividend is considered at least 2 days in advance excluding the date when Board Meeting Date was announced and date in which meeting will be held as per Regulation 29 of the SEBI (LODR) Regulations, 2015.
2. According to SEBI (PIT) Regulation, 2015 Listed companies need to intimate Stock Exchange prior to the close of the trading window as per their code of conduct.
3. Issue Notice to all the Board of Directors about the Board Meeting to their registered address at least 7 days prior to the actual day of the Board Meeting. In case of urgent business, shorter notice would suffice.
4. Along with the Notice attach the agenda and Draft resolution.
5. During the Board of Meeting consider all the detailed matters in regards to the declaration of the Interim Dividend.

1. As per Section 123(1)(a) – Make sure whether Companies financial position allows the Company to provide an Interim Dividend to be distributed out of the profits available after providing depreciation.
2. What percentage of profits are to be transferred to reserves?
3. To consider declaration of Interim Dividend to shareholders along with the source of payment.
4. Finalizing the list of shareholders for Interim Dividend to be distributed.
5. Opening Separate Bank Account in a scheduled Bank for making payment of Interim Dividend to the shareholders also to keep unpaid Dividend.
6. Deciding on the authority for signing the dividend warrants.
7. Printing dividend warrants.
8. Passing the Board Resolution for declaration of payment of Interim Dividend.

3. Within the 15 days from the conclusion of the Board Meeting circulate the Minutes of Meeting to all the Directors either in the form of mail/registered post/courier/hand for their comments also follow the prescribed procedure for preparing, circulating, signing, and Compiling of Board Meeting as per Secretarial Standards-1.
4. If any transmission/transfer of shares of the company has been lodged, then hold a board of directors meeting to get the approval for the same and the transfer of shares should be announced prior to the commencement of record date/closure of the books.
5. Prepare the dividend list from the Register of members or from the last date of the closure of the books containing the following details:
6. Name and the address of the Registered shareholders with their ledger Folio Number.

ii)    No. of shares held and,

iii)   Dividend Payable.

6. As resolved in the Board Meeting, open a Separate Bank Account with the scheduled Bank and deposit the Dividend payable amount within 5 days of the declaration of Interim Dividend.
7. Make sure the Dividend tax is paid to the Tax authorities within the stipulated time.
8. As per Section 123(5) within 30 days pay the Dividend declared by the company to its registered shareholders either by the Cheque or warrant or in any electronic mode.
9. Transfer the unpaid or unclaimed dividend to the Special account “Unpaid Dividend Account “within 7 days after the expiry of 30 days from the day of the Dividend declaration.
10. Within 90 days of making the transfer of unpaid or unclaimed to Unpaid Dividend Account then a statement needs to be prepared to contain the name of the shareholder, their known last address and unpaid dividend amount to each shareholder in Form No.5 INV and this needs to be published in the company website or also any website approved by the Central Government for this reason as per the Section 124(2).
11. As per Section 124(5) transfers all the unpaid dividend amount along with its incurred interest if any, to the Investor Education and Protection Fund after the expiry of 7 years from the date when the unpaid amount is credited to the Unpaid Dividend Account.
12. Any person who needs to claim the amount from the Unpaid Dividend Amount then needs to apply in the FORM IEPF-5 to the company.
13. All the shares in respect of which unpaid or unclaimed dividend has been transferred to Investor Education and Protection fund shall also be transferred by the company in the name of IEPF under Section 124(6).
14. The company will remit the amount to be deposited to the funds into specified PNB branches which are accredited banks of the Pay and Accounts Office of the Ministry of Corporate Affairs engaged by the MCA-21 system within 30 days of the timeline of such amounts being credited to the fund. Along with Challan, the amount will be tendered by companies to specified branches of PNB or to any authorized branches specified by MCA-21. The respective bank will give 2 copies of challan, a duly stamped token in confirmation of receiving the amount to the company as per Rule 5(1) and Rule 5(2) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016. The amount can be remitted by Electronic Fund transfer as well as specified by Central Government in Rule 5(5) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.
15. As per Rule 5(3) and Rule 5(4) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, the Company will file with the concerned Authority with 1 copy of challan indicating the deposit of the amount to the fund and fill in full details of the amount tendered including the details about the Head of the account to which it has been credited. Companies will submit all the details of such transfer in Form No. IEPF-1 along with challan to the Authorities within 30 days of submitting the challan.
16. Companies maintain a record consisting of the name, the last known address, amount, client Id or Folio Number, beneficiary details etc. Of the shareholders whose unpaid or unclaimed amount has been remained unclaimed or unpaid for a period of 7 years and which has been transferred to the Fund and authorities will have the power to inspect such record as per Rule 5(5)(c) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.
17. All the unpaid or unclaimed dividend shares which have been transferred to the IEPF shall also be transferred by the company in the name of Investor Education and Protection Fund as per Section 124(6).
18. In the next Annual General Meeting of the Company get the Confirmation on the Interim Dividend.

Key points

1. According to Section 124(4), any person who claims to be entitled to the money that has been transferred to the Unpaid Dividend Amount can apply to the Company for the payment to be claimed.
2. Following procedure needs to be considered when Companies are transferring shares to IEPF:

1. Companies should inform the shareholder at the latest known address regarding the transfer of shares at least 3 months before the due date of the transfer of the shares and same should be published in the Local widely popular newspaper informing the concerned that names of such shareholders along with their Folio Number are available on the company website and should specify the Website address.
2. Board of Directors will provide authority to the company secretary or to any other person to sign and approve all the necessary documents and then the shares will be credited to the DEMAT account of the Authority for the said purpose and this should be done within a period of 30 days of such shares which are in due to being transferred to the Fund according to Rule 6 of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.
3. If the shares are dealt with in a depository, then for the purpose of affecting the transfer:

• The company needs to inform the depositary by the corporate action where shareholders have the accounts in favour of Authority for transfer.
• On receiving the intimation, the depositor shall transfer the shares to the DEMAT account of the Authority. (According to Rule 6 (3)(c) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.)
• If the shares are held in the physical form and if they need to be transferred then:

• The Company Secretary or the person who is authorized by the Board of Directors will make an application on behalf of the concerned shareholders to issue a duplicate share certificate.
• Under clause (a) on receipt of the application, a duplicate certificate will be issued to each such shareholder and the same will be recorded in the registers maintained for the same stating that the duplicate certificate is issued in the share certificate No and for purpose of the transfer to IEPF and “duplicate” word will be punched in Bold letters on the first page of the share certificate.
• Details of every such share certificate issued shall be entered in a register of renewed and duplicate certificates maintained in Form No. SH-2 as specified in Companies Rule 2014.
• The company should inform the depository in the corporate action way to convert all the duplicate share certificates into DEMAT form and to transfer in the favor of Authority once the duplicate share certificates are issued. (According to Rule 6 (3)(d) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016).

3. All the transfers should be made through the corporate actions by the company and should preserve the copies of its records (Rule 6 (4) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016).
4. Until the rightful owner claims the shares that have been transferred to the Fund all the voting rights will remain frozen.

Conclusion

Declaring and paying Interim Dividends to the Shareholders by the company will gain the trust of the Shareholders and will help to maintain a healthy relationship between Company and the shareholders. During the payment of Interim Dividends, Companies need to follow all the rules that are required so that there will be no hindrance.

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