123. Declaration of dividend
(1) No dividend shall be declared or paid by a company for any financial year
except—
(a) out of the profits of the company for that year arrived at after providing for
depreciation in accordance with the provisions of sub-section (2), or out of the profits
of the company for any previous financial year or years arrived at after providing for
depreciation in accordance with the provisions of that sub-section 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:
Provided that 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:
Provided further that where, owing to inadequacy or absence of profits in any financial
year, any company proposes to declare dividend out of the accumulated profits earned by it in
previous years and transferred by the company to the reserves, such declaration of dividend
shall not be made except in accordance with such rules as may be prescribed in this behalf:
Provided also that no dividend shall be declared or paid by a company from its reserves
other than free reserves.
(2) For the purposes of clause (a) of sub-section (1), depreciation shall be provided in
accordance with the provisions of Schedule II.
(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 profits of the
financial year in which such interim dividend is sought to be declared:
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.
(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.
(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.
(6) A company which fails to comply with the provisions of sections 73 and 74 shall
not, so long as such failure continues, declare any dividend on its equity shares.