Payment of Dividend – Can it be in Kind ?

What is Dividend ?
As per explained in Section 2(35) of the Companies Act, 2013 the definition of Dividend is as follows.

“Dividend also includes Interim Dividend”
Dividend is basically derived from the Latin word “Dividendum”, which means “to be divided”. The dictionary meaning od Dividend is sharing of the profits amongst the shareholders which have given their money on risk to the company to earn some returns.

Declaration of Dividends:
To pay the dividend to the shareholders, the dividend must be declared. First of all the dividend is declared by BOD in the Board Meeting. After which the company will pass the resolution in the General Meeting (Ordinary Resolution).

The dividend declared in the General Meeting can never be more than the dividend decided by the Board Members. The dividend declared in the General Meeting is considered to be the final dividend and it needs to be paid within 30 days of such declaration.

Payment of Dividend
1. Firstly the dividend is declared in the annual general meeting (as discussed above), after that the dividend is accumulated in a separate bank account, in which the company needs to deposit in 5 days.

2. The dividend needs to be transferred to the bank accounts of shareholders within 30 days of the declaration in General Meeting.

3. If the mode of payment of dividend is through cheque or any other instrument then the initial validity would be 3 months, even if it is not cleared in 3 months, the validity of that cheque would be increased to further 3 months.

4. The dividend should be paid after deducting the taxes ( TDS ) if any applicable to the shareholder.

5. If the shares are not fully paid, i.e. they are partly paid, then the dividend would be limited to such partly paid up value only.

6. If there is some due amounts from the member or the share holder then company is authorised to adjust such amount, after serving proper notice to the person.

Can dividends be in Kind ?

Section 123(5) restricts the company to pay the dividend in kind. Dividend can be paid only through cash or cheque or demand draft or dividend warrant and not otherwise. High Court of Mumbai in the recent case of Indian Seamless
Enterprises Ltd decided that gift of goods to the shareholders would not be considered as dividend as it does not fall in the definition of dividend. But the important thing to note is that the dividends paid should never be made by giving some material or giving some gift to the shareholder. It should be for other than kind.