CHAPTER VIII DECLARATION AND PAYMENT OF DIVIDEND

1. CHAPTER VIII DECLARATION AND PAYMENT OF DIVIDEND CS. P RAJESH KUMAR JAIN Company Secretary HIL Limited

2. COVERAGE (Sec 123 - 127)  •   123- Declaration of dividend.  •   124- Unpaid dividend account.  •   125- Investor Education and Protection Fund. • 126- Right to dividend, rights shares and bonus shares to be held in abeyance pending registration of transfer of shares.  •   127- Punishment for failure to distribute dividends.

3. Section 123- Declaration of Dividend.... (1) Dividend shall be declared or paid by a company for any financial year  —  (a) out of the profits of the company for that year arrived at after providing for depreciation, or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation and remaining undistributed, or out of both; or (b) out of money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government. A company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company.

4. Section 123- Inadequacy or Absence Of Profits In the event of inadequacy or absence of profits in any year, a company may declare dividend out of its accumulated profits, free reserves and surplus subject to the following conditions: (a) The rate of dividend declared shall not exceed the average of the preceding three years rates of dividend unless it has not declared any dividend in each of the three preceding financial year. (b) The total amount to be drawn from such accumulated profits shall not exceed 1/10th of its paid-up share capital and free reserves as per its latest audited financial statement. (c) The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividend is declared before any dividend in respect of equity shares is declared. (d) The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share capital as per the latest audited financial statement. (e) No dividend shall be declared unless carried over losses and depreciation are set off against profit of the company of the current year.

5. FREE RESERVES “free reserves” means such reserves which, as per the latest audited balance sheet of a company, are available for distribution as dividend. provided that— (i) any amount representing unrealised gains, notional gains or revaluation of assets, whether shown as a reserve or otherwise, or (ii)any change in carrying amount of an asset or of a liability recognised in equity, including surplus in profit and loss account on measurement of the asset or the liability at fair value, shall not be treated as free reserves.

6. Depreciation 123 (2) Depreciation shall be provided in accordance with the provisions of Schedule II. Important highlights from the Schedule II are as follows: • -- The useful life or residual value of an asset have been specified in Part C of the Schedule. Companies will be required to give disclosure for cases where the useful life or residual value is different from the useful life or residual value as specified in Part C of the Schedule. • -- It is clarified in the 2013 Act that the requirements of Part C will not be applicable for companies in respect of which the useful life or residual value is notified by a regulatory authority.

7. Interim Dividend 123 (3) The Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the Profit and Loss Account and out of current year profits. Provided that in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years.

8. Deposit of Dividend 123(4)The amount of the dividend, including interim dividend, shall be deposited in a scheduled bank in a separate account within five days from the date of declaration of such dividend.

9. Payment of Dividend 123 (5) No dividend shall be paid by a company in respect of any share therein except to the registered shareholder of such share or to his order or to his banker and shall not be payable except in cash: Provided that nothing in this sub-section shall be deemed to prohibit the capitalisation of profits or reserves of a company for the purpose of issuing fully paid-up bonus shares or paying up any amount for the time being unpaid on any shares held by the members of the company: Provided further that any dividend payable in cash may be paid by cheque or warrant or in any electronic mode to the shareholder entitled to the payment of the dividend. Section 127 requires every Company to pay the dividend or post the warrant in respect thereof has not been posted within thirty days from the date of declaration to all the shareholders entitled to the payment of the dividend

10. Defaults in Deposits As per Section 123 (6) a Company which fails to comply with the provisions of section 73 (Prohibition on acceptance of deposits from public) and Section 74 (Repayment of deposits, etc., accepted before commencement of this Act) shall not, so long as such failure continues, declare any dividend on its Equity shares. Under the Companies Act, 1956 the restriction was imposed in case of failure of redeemable preference shares accepted before the commencement of the Companies Act, 1956.

11. What has changed ???? What has Changed: • In case of interim dividend, where the Company has incurred losses during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, in such a case, the rate at which such interim dividend shall be declared shall not be at a rate higher than the average dividends declared by the Company during the immediately preceding 3 financial years. • Dividend payable in cash can also be paid in any electronic mode to the shareholder entitled to the payment of such dividend. • Now a Company which fails to comply with the provisions of section 73 (Prohibition on acceptance of deposits from public) and Section 74 (Repayment of deposits, etc., accepted before commencement of this Act) shall not, so long as such failure continues, declare any dividend on its Equity shares. Under the Companies Act, 1956 the restriction was imposed only in case of failure of redeemable preference shares accepted before the commencement of the Companies Act, 1956. • Instead of transferring a fixed % of profits to reserves before declaring dividend every year, a Company can at its discretion transfer such % of profit to the reserves before declaring dividend as it deem necessary and moreover such transfer is not mandatory.

12. What has changed ???? • The depreciation calculation methodology has been changed and it shall only be calculated in accordance with the Schedule II and no other alternative has been provided. • In case of inadequacy or absence of profits in any year, a company may declare dividend out of surplus profits earned by it in previous years and transferred to reserves , subject to the fulfilment of the conditions as prescribed in Rule • Power of the Central Government in public interest to allow Company to declare dividend for any financial year out of profits of the Company for that year or any previous financial year or years without providing for depreciation, has been dispensed with.

13. SECTION 124 UNPAID DIVIDEND ACCOUNT 1) Where a dividend has not been paid or claimed within 30 days from the date of the declaration, the company shall, within 7 days thereafter, transfer the total amount of unpaid or unclaimed dividend to a special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account. (2) The company shall, within 90 days of transferring of unpaid or unclaimed dividend amount to the unpaid dividend account, prepare a statement containing the names, their last known addresses and the unpaid dividend to be paid to each person and place it on the website of the company, if any, and also on any other website approved by the Central Government for this purpose, in such form, manner and other particulars as may be prescribed.   (3) If any default is made in transferring the unpaid or unclaimed dividend amount or any part thereof to the Unpaid Dividend Account of the company, the Company shall pay, from the date of such default, interest @ 12% P.A. on so much of the amount which has not been transferred to the said account and the interest accruing on such amount shall ensure to the benefit of the members of the company in proportion to the amount remaining unpaid to them. (4) Any person claiming to be entitled to the amount in the Unpaid Dividend Account of the company may apply to the company for payment of the money claimed.

14. Section 124 (Contd....) (5) Any money transferred to the Unpaid Dividend Account of a company and which remains unpaid or unclaimed for a period of seven years from the date of such transfer shall be transferred by the company along with interest accrued, if any,  thereon  to the Investor Education & Protection Fund established and the company shall send a statement in the in Form DIV 5. of the details of such transfer to the authority which administers the said Fund and that authority shall issue a receipt to the company as evidence of such transfer: (6) All shares in respect of which unpaid or unclaimed dividend has been transferred under sub-section (5) shall also be transferred by the company in the name of Investor Education and Protection Fund along with a statement containing such details as may be prescribed. Provided that any claimant of shares transferred above shall be entitled to claim the transfer of shares from Investor Education and Protection Fund in accordance with such procedure and on submission of such documents as may be prescribed. (7) If a company fails to comply with any of the requirements of section 124, the company shall be punishable with min fine of 5 lakh rupees and a max of 25 lakh rupees and every officer of the company who is in default shall be punishable with a min fine of 1 lakh rupees and max of 5 lakh rupees.

15. What has changed • It is specifically clarified that any person claiming to be entitled to any money transferred to the Unpaid Dividend Account of the company may now apply to the company for payment of the money claimed, under the Companies Act 1956 this provision is missing. • A new provision has been introduced where by when any company transfers any amount to the unpaid dividend account, then within a period of ninety(90) days of making such  transfer, it is required to prepare a statement containing the names, their last known addresses and the unpaid dividend to be paid to each person and place it on the website of the company, if any, and also on any other website approved by the Central Government for this purpose, in such form, manner and other particulars as may be prescribed. • Another new provision has also been inserted which requires that all shares in respect of which unpaid or unclaimed dividend has been transferred to Investor Education and Protection Fund, shall be transferred by the company in the name of Investor Education and Protection Fund along with a statement containing such details as may be prescribed. A good move but its practical applicability seems difficult and will also create procedural hardships. • Any claimant of shares transferred above shall be entitled to claim the transfer of shares from Investor Education and Protection Fund in accordance with such procedure and on submission of such documents as may be prescribed. • The punishment in case of failure to transfer the amount in unpaid dividend account has been increased.

16. SECTION 125 INVESTOR EDUCATION AND PROTECTION FUND. (1) The Central Government shall establish a Fund to be called the Investor Education and Protection Fund (herein referred to as the Fund). (2) There shall be credited to the Fund–   (a) the amount given by the Central Government by way of grants after due appropriation made by Parliament by law in this behalf for being utilised for the purposes of the Fund; (b) donations given to the Fund by the Central Government, State Governments, companies or any other institution for the purposes of the Fund; (c) the amount in the Unpaid Dividend Account of companies transferred to the Fund under sub-section (5) of section 124; (d) the amount in the general revenue account of the Central Government which had been transferred to that account under sub-section (5) of section 205A of the Companies Act, 1956, as it stood immediately before the commencement of the Companies (Amendment) Act, 1999, and remaining unpaid or unclaimed on the commencement of this Act; (e) the amount lying in the Investor Education and Protection Fund under section 205C of the Companies Act, 1956; (f) the interest or other income received out of investments made from the Fund; (g) the amount received under sub-section (4) of section 38; (h)  the application money received by companies for allotment of any securities and due for refund; (i) matured deposits with companies other than banking companies; (j)  matured debentures with companies; (k) interest accrued on the amounts referred to in clauses (h) to (j); (l) sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for seven or more years; (m) redemption amount of preference shares remaining unpaid or unclaimed for seven or more years; and (n) such other amount as may be prescribed: Provided that no such amount referred to in clauses (h) to (j) shall form part of the Fund unless such amount has remained unclaimed and unpaid for a period of seven years from the date it became due for payment.

17. SECTION 125 (contd...) (3) The Fund shall be utilised for— (a) the refund in respect of unclaimed dividends,  matured deposits, matured debentures, the application money due for refund and interest thereon; (b) promotion of investors’ education, awareness and protection; (c) distribution of any disgorged amount among eligible and identifiable applicants for shares or debentures, shareholders, debenture-holders or depositors who have suffered losses due to wrong actions by any person, in accordance with the orders made by the Court which had ordered disgorgement; (d) reimbursement of legal expenses incurred in pursuing class action suits under sections 37 and 245 by members, debenture-holders or depositors as may be sanctioned by the Tribunal; and (e) any other purpose incidental thereto, in accordance with such rules as may be prescribed: Provided that the person whose amounts referred to in clauses (a) to (d) of sub-section (2) of section 205C transferred to Investor Education and Protection Fund, after the expiry of the period of seven years as per provisions of the Companies Act, 1956, shall be entitled to get refund out of the Fund in respect of such claims in accordance with rules made under this section. Explanation.—The disgorged amount refers to the amount received through disgorgement or disposal of securities.

18. SECTION 125 (contd...) (4) Any person claiming to be entitled to the amount referred in sub-section (2) may apply to the authority constituted under sub-section (5) for the payment of the money claimed. (5) The Central Government shall constitute, by notification, an authority for administration of the Fund consisting of a Chairperson and such other members, not exceeding seven and a chief executive officer, as the Central Government may appoint.  (6)  The manner of administration of the Fund, appointment of chairperson, members and chief executive officer, holding of meetings of the authority shall be in accordance with such rules as may be prescribed. (7) The Central Government may provide to the authority such offices, officers, employees and other resources in accordance with such rules as may be prescribed.

19. SECTION 125 (contd...) (8) The authority shall administer the Fund and maintain separate accounts and other relevant records in relation to the Fund in such form as may be prescribed after consultation with the Comptroller and Auditor-General of India. (9) It shall be competent for the authority constituted under sub-section (5) to spend money out of the Fund for carrying out the objects specified in sub-section (3). (10) The accounts of the Fund shall be audited by the Comptroller and Auditor-General of India at such intervals as may be specified by him and such audited accounts together with the audit report thereon shall be forwarded annually by the authority to the Central Government. (11) The authority shall prepare in such form and at such time for each financial year as may be prescribed its annual report giving a full account of its activities during the financial year and forward a copy thereof to the Central Government and the Central Government shall cause the annual report and the audit report given by the Comptroller and Auditor-General of India to be laid before each House of Parliament.

20. What has changed ???? Now in addition to the amount, which are provided under the Companies Act 1956 to be transferred to the Investor Education and Protection Fund(IEPF), following additional category of amounts would also be credited to it: a.  the amount given by the Central Government by way of grants after due appropriation made by Parliament by law in this behalf for being utilized for the purposes of the Fund; b. donations given to the Fund by the Central Government, State Governments, companies or any other institution for the purposes of the Fund; c.  the amount in the general revenue account of the Central Government which had been transferred to that account under sub-section (5) of section 205A of the Companies Act, 1956, as it stood immediately before the commencement of the Companies (Amendment) Act, 1999, and remaining unpaid or unclaimed on the commencement of this Act; d.  the amount lying in the Investor Education and Protection Fund under section 205C of the Companies Act, 1956; e.  the amount received by way of punishment for impersonation for acquisition, etc., of securities under Section 38;

21. What has changed ??? f.  sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for seven or more years; g.  redemption amount of preference shares remaining unpaid or unclaimed for seven or more years Further the Act clearly provides the purposes for which IEPF may  be utilized. The accounts of the fund shall be audited by the Comptroller and Auditor-General at such intervals as may be specified by him and such accounts as certified together with the audit report shall be forwarded to the Central Government annually. The Central Government shall cause the annual report and the audit report to be laid before each house of parliament. Any person claiming to be entitled to the amount transferred in IEPF can apply to the authority for the amount he is entitled to, which was not earlier allowed under the Companies Act 1956.

22. SECTION 126 : Right to dividend, rights shares and bonus shares to be held in abeyance pending registration of transfer of shares. Where any instrument of transfer of shares has been delivered to any company for registration and the transfer of such shares has not been registered by the company, it shall, notwithstanding anything contained in any other provision of this Act,— (a) transfer the dividend in relation to such shares to the Unpaid Dividend Account referred to in section 124  unless the company is authorised by the registered holder of such shares in writing to pay such dividend to the transferee specified in such instrument of transfer; and (b) keep in abeyance in relation to such shares, any offer of rights shares under clause (a) of sub-section (1) of section 62 and any issue of fully paid-up bonus shares in pursuance of first proviso to sub-section (5) of section 123. • No Change

23. SECTION 127 Punishment for failure to distribute dividends. Where a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within thirty days from the date of declaration to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to two years and with fine which shall not be less than one thousand rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate of 18% P.A during the period for which such default continues: Provided that no offence under this section shall be deemed to have been committed:— (a) where the dividend could not be paid by reason of the operation of any law; (b) where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with and the same has been communicated to him; (c) where there is a dispute regarding the right to receive the dividend; (d)  where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder; or (e) where, for any other reason, the failure to pay the dividend or to post the warrant within the period under this section was not due to any default on the part of the company.

24. Sections where rules are yet to be prescribed: Section 124 Unpaid dividend account: • The form , manner and particulars, of the persons to whom dividend has not been paid, which the Company has to disclose on its website (if any) and other website approved by central government may be prescribed. • Shares in respect of which unpaid dividend has been transferred to Investor Education and Protection Fund (IEPF) shall also be transferred in favour of IEPF along with statement containing such details as may be prescribed. • Procedures and documents for claiming the transfer of shares from Investor Education Provident Fund may be prescribed. Section 125 Investor Education and Protection Fund. • Additional amount, which shall be credited to the Fund, may be prescribed. • Rules, in accordance, with which, funds  of Investor Education Protection Fund shall be utilized, may be prescribed. • Rules, for the manner of administration of the fund, appointment of chairperson, members and chief executive officer, holding of meetings of the authority for administration of Fund may be prescribed. • Rules in accordance with which central government may provide to the administration authority such offices, officers, employees and other resources may be prescribed. • Form in accordance with which the authority shall maintain separate accounts and other relevant records in relation to the fund may be prescribed. • Form and time, for the annual report of the authority, may be prescribed.

25. Dividend Distribution Tax • As per section 115(O) of Income Tax Act, 1961 any dividend paid by Companies to its shareholders is subject to Dividend Distribution Tax . - Basic Rate - 15% - Surcharge - 10% - Cess - 3% Effective Rate @ 16.995 % • Dividend is tax free in the hands of Shareholders • Responsibility is on the corporate to ensure payment of DDT. • Time limit - 14 days from date of approval • Date of Approval - Interim Dividend - from BM date Final Dividend - from AGM date • Tax to be paid online and Information to be filed with IT Department along with the Income Tax Audit Report.

26. Payment of Dividend to Non Resident Shareholders Dividends are freely repatriable without any restrictions (net after Tax deduction at source or Dividend Distribution Tax, if any, as the case may be), excepting remittance of dividend requires permission when investment was allowed subject to *dividend balancing condition.

27. DIVIDEND BALANCING Where a company is engaged in any of the industries in the consumer goods sector, specified in Annexure E to Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000, or in any other activity where the condition of dividend balancing has been stipulated in terms of the provisions of Industrial Policy and Procedures notified by Secretariat for Industrial Assistance, the cumulative outflow of foreign exchange on account of payment of dividend over a period of seven years from the date of commencement of commercial production to investors outside India shall not exceed cumulative amount of export earning of the company during those years.

28. Remittance of Dividend • Indian companies intending to remit dividend to their non-resident shareholders should make an application to an authorised dealer in Form RCD 1, supported by the particulars of non-resident shareholding in form RCD 2and other documents prescribed in the form. • In case of Interim Dividend application may be made by the company in India to the authorised dealer by letter (in duplicate) enclosing only the form RCD 2 and a copy of the Board Resolution approving the payment of interim dividend. • Authorised dealers may allow the remittance of dividend in accordance with the procedure prescribed by RBI. • In cases where dividend is to be credited to NRO accounts of the non-resident investors, there is no need to follow the above procedure.

29. CS. P RAJESH KUMAR JAIN Company Secretary HIL Limited Mob: 9704030202 Email: rajjainacs@gmail.com Question ?????? THANK YOU