From: BIPIN ACHARYA <bipinsacharya@gmail.com>
Date: Fri, Nov 18, 2011 at 6:25 PM
Subject: Re: Fw: [CharteredSecretaries] dividend out of reserves .
To: CharteredSecretaries@yahoogroups.co.in, Company_Secretary <company_secretary@yahoogroups.com>
Date: Fri, Nov 18, 2011 at 6:25 PM
Subject: Re: Fw: [CharteredSecretaries] dividend out of reserves .
To: CharteredSecretaries@yahoogroups.co.in, Company_Secretary <company_secretary@yahoogroups.com>
Dear friends,
[1] the basic requite to be complied before paying any dividend is that it has to be paid out of profits arrived at after providing for depreciation.
[2] Such profits may be current year's profits
or profits of the company for any financial year or years and remaining
or out of both
as has been provided in section 205[1] of the Companies Act, 1956 [ Act ].
[3] Profits of the company for any previous financial year or years and remaining undistributed may be reflected in the Balance Sheet either in General Reserve or in the credit /surplus balance of Profit & Loss Account comprised in RESERVES AND SURPLUS on the Liabilities Side of Balance Sheet.
[4] No dividend of the company can be declared or paid by a company for any financial year out of the profits of the company for that year except after the transfer to the reserves of the company of such percentage of its profits for that year , not exceeding ten percent as may be prescribed as has been provided in section 205[2A] of the Act. The relevant rules are the Companies [ Transfer of Profits to Reserves ] Rules, 1975.
[5] Unlike section 205[2A] referring to the required percentage as may be prescribed and the same being prescribed in the Companies [ Transfer of Rules to Reserves ] Rules, 1975, is there any provision in sections 205, 205A, 205C, 206, 206A and 207 of the Act which prescribes to the effect that no dividend shall be paid out of un-profits of previous years [ reflected in General Reserve of the company ] except after complying with regulations as may be prescribed?????
Members of the Group may kindly enlighten others in the matter.
[6] Interim dividend can be declared and paid by the Board of Directors.as has been provided in section 205[1A],[1B] and the provisions of sections 205, 205A, 205C, 206 , 206A and 207 of the Act apply thereto as far as may be possible as has been provided in section 205[1C] of the Act.
[7] Dividend includes interim divided as per section 2[14A] of the Act.
[8] Dividend , under the Act, goes through three procedural stages. viz. [i] recommendation/ decision to pay the dividend per section 217[1][c] of the Act. [ii] declaration of dividend per section 206[1] and 205[1C] of the Act and [iii] payment of dividend as envisaged in sections 205 and 205A of the Act.
Declaration or payment of dividend can be effected only after the transfer of profits to reserves such percentage of profit for that financial year as may be prescribed as per section 205[2A] of the Act.
[9] Notwithstanding the submission in para [5] hereof, when we examine the Companies [ Transfer of Profits to Reserves ] Rules, 1975, it is found that they are made pursuant to section 205[3] and 642[a]
{ which appears to be inadequate and which inadequacy could have been cured by invoking the powers under section 642[1][b] of the Act }.
Basically, the above Rules provide for matters relating to DECLARATION of dividend.Such declaration can be made by the company in annual general meeting per the items of ordinary business mentioned in section 173[1][a][ii] of the Act and in case of interim dividend by the Board of Directors as per section 205[1A].Declaration of dividend in conformity with section 2[14A] is thus envisaged.
[10] Rule 2 of the above Rules provides as how dividend dividend can be declared IN THE EVENT OF INADEQUACY OR ABSENCE OF PROFITS IN ANY YEAR.
Inadequacy or absence of profits in any year can be determined, under the scheme of the Act, after the closure of the financial year.
Under the above circumstances, the Act does not envisage the applicability of the above Rules to the interim dividend which is envisaged, under the Act, to be declared by the Board and paid during the course of a financial year and undoubtedly, the Act envisages the above Rules to apply to the dividend declared at an annual general meeting of the Company before which the final audited Balance Sheet & Profit and Loss Account for the financial year are laid and in which accounts the inadequacy or absence of profits is duly decided upon by the Board before recommending the dividend for that financial year.
[11] The response to the query under reference would be YES to para 2 and also to para 1 on account of the relevant statutory provisions discussed here-in-before, please.
Members in the Groups may kindly share their views and work-experinces in the above matters.
charms,
bipin
[1] the basic requite to be complied before paying any dividend is that it has to be paid out of profits arrived at after providing for depreciation.
[2] Such profits may be current year's profits
or profits of the company for any financial year or years and remaining
or out of both
as has been provided in section 205[1] of the Companies Act, 1956 [ Act ].
[3] Profits of the company for any previous financial year or years and remaining undistributed may be reflected in the Balance Sheet either in General Reserve or in the credit /surplus balance of Profit & Loss Account comprised in RESERVES AND SURPLUS on the Liabilities Side of Balance Sheet.
[4] No dividend of the company can be declared or paid by a company for any financial year out of the profits of the company for that year except after the transfer to the reserves of the company of such percentage of its profits for that year , not exceeding ten percent as may be prescribed as has been provided in section 205[2A] of the Act. The relevant rules are the Companies [ Transfer of Profits to Reserves ] Rules, 1975.
[5] Unlike section 205[2A] referring to the required percentage as may be prescribed and the same being prescribed in the Companies [ Transfer of Rules to Reserves ] Rules, 1975, is there any provision in sections 205, 205A, 205C, 206, 206A and 207 of the Act which prescribes to the effect that no dividend shall be paid out of un-profits of previous years [ reflected in General Reserve of the company ] except after complying with regulations as may be prescribed?????
Members of the Group may kindly enlighten others in the matter.
[6] Interim dividend can be declared and paid by the Board of Directors.as has been provided in section 205[1A],[1B] and the provisions of sections 205, 205A, 205C, 206 , 206A and 207 of the Act apply thereto as far as may be possible as has been provided in section 205[1C] of the Act.
[7] Dividend includes interim divided as per section 2[14A] of the Act.
[8] Dividend , under the Act, goes through three procedural stages. viz. [i] recommendation/ decision to pay the dividend per section 217[1][c] of the Act. [ii] declaration of dividend per section 206[1] and 205[1C] of the Act and [iii] payment of dividend as envisaged in sections 205 and 205A of the Act.
Declaration or payment of dividend can be effected only after the transfer of profits to reserves such percentage of profit for that financial year as may be prescribed as per section 205[2A] of the Act.
[9] Notwithstanding the submission in para [5] hereof, when we examine the Companies [ Transfer of Profits to Reserves ] Rules, 1975, it is found that they are made pursuant to section 205[3] and 642[a]
{ which appears to be inadequate and which inadequacy could have been cured by invoking the powers under section 642[1][b] of the Act }.
Basically, the above Rules provide for matters relating to DECLARATION of dividend.Such declaration can be made by the company in annual general meeting per the items of ordinary business mentioned in section 173[1][a][ii] of the Act and in case of interim dividend by the Board of Directors as per section 205[1A].Declaration of dividend in conformity with section 2[14A] is thus envisaged.
[10] Rule 2 of the above Rules provides as how dividend dividend can be declared IN THE EVENT OF INADEQUACY OR ABSENCE OF PROFITS IN ANY YEAR.
Inadequacy or absence of profits in any year can be determined, under the scheme of the Act, after the closure of the financial year.
Under the above circumstances, the Act does not envisage the applicability of the above Rules to the interim dividend which is envisaged, under the Act, to be declared by the Board and paid during the course of a financial year and undoubtedly, the Act envisages the above Rules to apply to the dividend declared at an annual general meeting of the Company before which the final audited Balance Sheet & Profit and Loss Account for the financial year are laid and in which accounts the inadequacy or absence of profits is duly decided upon by the Board before recommending the dividend for that financial year.
[11] The response to the query under reference would be YES to para 2 and also to para 1 on account of the relevant statutory provisions discussed here-in-before, please.
Members in the Groups may kindly share their views and work-experinces in the above matters.
charms,
bipin
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