UNIT-I

Nature Definition and characteristic of Company, Lifting the Corporate Veil, Kinds of
Companies, Formation and incorporation of a Company, Promoter-status, position, function
and remuneration.
Leading Case: Ramana Dayaram Shetty v. International Airports Authority of India –
AIR1979 SC 1628

UNIT-II
Memorandum of association, vaurious clauses, alteration therein, Doctrine of Ultravires,
Articles of Association, binding force, alteration, its relation with memorandum of
association, Doctrine of Constructive notice, Meeting-meaning, kinds, resolutions, quorum
and voting
Leading Case: Shabbir Ahmed Safedabad Cold Storage & Allied Industries (P) Ltd. 2017,
NCLT, Kolkata 80

UNIT-III
Directors: position, appointment, qualification, vacation of office, Removal, Resignation,
Powers and duties of Directors remuneration of directors, Role of nominee directors,
Compensation for loss of office, Managing Director and other managerial personnel,
Secretary: definition, qualification, position, appointment duties and qualities, Auditor,
qualification, disqualification, appointment, tenure, Re-appointment and removal of an
auditor.

Leading Case: Sridhar Sundarajan v. Ultramarine & Pigments Ltd., 2016, Bombay 167.

UNIT-IV
Majority rules and minority protection, Prevention of Oppression and mis-management,
Winding up: types, grounds, who can apply, procedure, Powers of Liquidator, consequences
of winding up order, Liability of past members, Receiver: power, appointment, duties and
liabilities

Leading cases: i) Foss Vs Harbottle(1843) 2 Hare 461

ii) Kedia Industries Ltd. Vs Star Chemical Ltd. (1999) 98 Co. Cases 233
Unit-1
Leading Case: Ramana Dayaram Shetty v. International Airports Authority of India –
AIR1979 SC 1628

The Supreme Court concluded in this decision that if a body is a government agency or
instrumentality, it can be an authority under Article 12 regardless of whether it is a statutory
corporation, a government company, or a registered society. As a result, the International
Airport Authority of India is a State under Article 12 because it was established by an Act of
Parliament.

The Court concluded that the following standards can be employed in an illustrative sense to
establish whether a body or agency is a government instrumentality. Justice P.N. Bhagwati
administered a 5-point test. This is a test to see if a body is a government agency or
instrumentality, and it goes like this:

The government’s financial resources are the primary source of funding for such an
organization, as the government owns the whole share capital of the corporation.
The existence of a deep and extensive state control system.
Such an organization or agency’s functions are of public importance and are closely tied to
government functions.

That is to say, such functions should be primarily governmental in nature.

A government department was turned over to a company.
The agency’s status, whether monopoly or not, is bestowed and safeguarded by the state.
After considering the powers and functions bestowed upon the International Airport
Authority, the Supreme Court determined that the Authority fell within the concept of
“State.”

Issue: The International Airport Authority of India a state?

Court: Held
 it performed functions that were considered to be of a public nature or for the benefit
of the general public.
 the AAI, which was a statutory body established by an Act of Parliament
  performed functions that were akin to those of the government, such as managing and
operating airports, providing air traffic control services, and ensuring the safety and
security of air travellers.

Five points were mentioned by Justice P.N. Bhagwati:

1. whether the body is created by a statute, i.e., whether it is a statutory body.
2. whether the body is financially autonomous or receives funding from the government.
3. whether the body is vested with powers or duties that are normally associated with
governmental functions.
4. whether the body is subject to a significant degree of control by the government or the
government exercises regulatory control over its functions.
5. whether the body has a monopoly in a particular field or whether it performs a public
function.

Unit-2

Meetings under Company Law

Annual General Meeting

An Annual general meeting refers to the meeting which is held annually by
the companies. It is important for every type of company whether it is a
private company or a public company, limited by shares or guarantee to
conduct an annual general meeting once in a year. There shouldn’t be a gap
of more than 15 months between two annual general meetings. An exception
is given when a company is incorporated, in such a case the company may
not conduct an annual general meeting in the year at all. After incorporation,
the company needs to conduct an annual general meeting within 18 months.

According to Section 166 of the Companies Act, the first meeting after
incorporation of the company must be held within 18 months. Subject to the
exception of incorporation, there shouldn’t be a gap of more than 15 months
between two annual general meetings. Except for in the case of the first
annual general meeting, the Registrar has the power to extend the annual
general meeting for a time period which should not be more than 3 months. A
notice must be given for annual general meeting specifying details such as
date, place of the meeting. The notice served must specify that the meeting
is the annual general meeting and the time and date assigned for it must be
during business hours, and on a date which isn’t a public holiday. The place
of the meeting should be the registered office of the company and if not so,
then it must be within the town, city or village in which the company is
officially registered.

According to Section 167 of the Act, in case there is a default by the company
in conducting the annual general meeting and any member of the company
files an application for the contravention of the said default, the Regional
Director of the Company Law Board may call for a meeting or direct holding
of a meeting and then that meeting would be counted as the annual general
meeting. Where the provisions of Section 166 and 167 of the Act are
contradicted, then in such a case, a fine can be imposed on the Company and
every officer of the company responsible. A notice is to be served in advance
of 21 days for the annual general meeting but in case the notice is not served
before 21 days and all the members who are entitled to vote in the meeting
agree for an annual general meeting, then the meeting can be called with
shorter notice.

The matters which are taken up to be discussed in an annual general meeting

are known as ordinary business. These are the matters which are discussed
in every annual general meeting. Ordinary business constitutes of discussion
on annual accounts, important reports such as director’s report and auditor’s
report, declaration of dividend, the appointment of directors, etc. Apart from
ordinary business, a special business can also be discussed in annual general
meeting.

Extraordinary General Meeting

The matters which constitutes to be the ordinary business of the company is
discussed in a statutory meeting and annual general meeting. To discuss the
matters apart from ordinary business i.e. special business extraordinary
general meeting is called for. Any meeting which is called apart from
statutory meeting and annual general is called an extraordinary meeting.
Extraordinary general meeting is usually called for discussing matters which
are urgent and can’t wait to be discussed in the annual general meeting. The
extraordinary general meeting can be called by the directors of the company
as well as by the shareholders who hold at least one-tenth of the paid-up
share capital of the company. Shareholders can make a requisition to the
board of directors of the company to call a meeting. If the meeting is not
arranged for even after requisition by Shareholders then the Shareholders
may convene the meeting.

According to Section 186 of the Companies Act, Company Law Board has the
power to call an extraordinary general meeting but not an annual general
meeting. Shareholders of the company are empowered to convene a meeting
within 3 months if it is not convened within 21 days of requisition by the
Company Law Board.
In an extraordinary general meeting matters like alteration of clauses of
Memorandum of Association, changes in the Articles of Association, schemes
in relation to share capital are usually discussed. Any matter which needs to
be discussed upon in urgent also calls for extraordinary general meetings.

In case, the extraordinary general meeting can’t be held due to some reasons
then, the Company Law Board may call the meeting on its own initiative. A
notice is to be served in advance and it should include details like the cause
of such meetings, the interest of directors, managers or shareholders in the
matters which caused need to call for the meeting. The special resolution
which is passed in the meeting has to be filed to the Registrar within 15 days.

Power to Call Board Meetings

The Secretary or a director of a company has the power to call board
meetings. The board meetings can be called by the Secretary or a director by
following the procedure which is laid down by the Companies Act, 2013. The
meeting can be called on the direction of the Chairman/Managing Director.
Any director can requisite to convene a board meeting and then on such
requisition, the Manager, Secretary or any Director can summon a board
meeting. Notice for such a meeting is to be served in advance and it should
be done under the company’s authority. If a notice for a board meeting is
sent without any authority, then it will be considered to be an improper
notice. In case, a director wants to convene a board meeting to discuss some
urgent matters, then he must do so with the permission of the Managing
director of the company.

In the case of Sanjiv Kothari v Vasant Kumar Chordia, it was observed that if
a meeting is convened by the Managing director on requisition by the director
on the same date at the registered office to discuss the same matters which
was brought forward by the director then, the director must attend that
meeting and should not arrange any other meeting on the same date at
some different place.

Procedure of Meetings
It is the responsibility of the director of the company to ensure that the
procedure followed for conducting the meetings of the company is valid and
in accordance with the Companies Act. The decisions that are taken in the
meeting should be according to the sections of the Companies Act. It is the
duty of the director to ensure that the members of the meeting are notified of
the details of the meeting like the place, time and date of the meeting, type
of the meeting, the business that will be considered at the meeting and the
notice should also include motions and resolutions that will be put forward to
the members during the meeting.

It is important to confirm that there is a quorum present before the meeting

commences and also it is important to ensure that the quorum is maintained
during the process of meeting as it is necessary for a valid motion to pass. If
the quorum is achieved, the meeting may commence and all the voting and
passing of resolutions during the meeting should be in conformation with the
rules under the Companies Act and it should be accurately recorded in the
minutes of the meeting. If the meeting is not conducted in accordance with
the rules of the Companies Act, then the directors of the company will be
held responsible and be liable for a fine.

A meeting must be chaired by a chairperson. The chairperson is responsible

to control the proceedings of the meeting. He introduces and concludes the
meeting. The chairperson has to ensure that proper notice is served to the
members of the meeting and go through the minutes of the last meeting. He
ensures that the meeting takes place and gets over within the time
prescribed for it. He keeps order and facilitates the meeting, ensures
everyone gets an equal opportunity to share their views. The chairperson
receives motions and puts a vote on such motions. In case of a tie, the
chairperson has to cast a final vote and declare the result.

Notice
A notice of a meeting is served to all the members of the meeting to discuss
the business at the meeting. A notice is to be served to the members of the
meeting in a manner which is prescribed under the Companies Act. Notice for
the general meetings must also be served to directors, auditors, and to any
such member who is entitled to a share in case a member of the meeting
dies. In case, a company accidentally fails to serve a notice to a person who
is entitled to receive it, the meeting would not be considered invalid. All the
members of the meeting are entitled to vote in the matters raised in the
meeting.

The contents of the notice depends on the type of meeting which is called for,
if the company has called for annual general meeting, it will include all
ordinary business which will be discussed in the meeting and if extraordinary
general meeting is called by the company, then the notice will include the
special business and resolutions which will be discussed in the meeting.
Annual general meeting needs a notice to be served to the members of the
meeting in advance of 21 days whereas, in the extraordinary general
meeting notice is needed to be served in advance of 14 days.

In the case of Parker and Cooper Ltd v Reading, it was observed that when
the notice which was served to the members of the meeting is improper but
still the members of the meeting attended the meeting, then the notice can
be made good and the meeting can be considered to be a valid meeting
irrespective of the fact whether notice which was served for the meeting was
proper or improper.
Contents of notice
The notice must contain the following contents:

 Place where the meeting will be conducted

 Date, day and time on which the meeting will be conducted
 The business which will be discussed in the meeting
 Brief of business
 The date on which notice is served
 Signature of the convener of the meeting

Quorum
the minimum number of members of an assembly or society that must be present at any of its
meetings to make the proceedings of that meeting valid.

Section 103 of the Companies Act lays down the Quorum which is required
for the meeting. The quorum refers to the minimum number of members
required to conduct a meeting. According to Section 174 of the Companies
Act, one-third of the total number of members to the meeting constitutes a
quorum for the meeting. In a meeting, a minimum of two directors are
required to attend the meeting but where the company is owned by a single
person then, in that case, the condition does not apply.

 According to Section 174(1) of the Companies Act, It is possible for a

director to attend a meeting through a video conference call. A director
attending a meeting through video conference will also be considered
while counting for a quorum.
 A quorum of the meeting has to be maintained throughout the
meeting. In order to ensure that quorum is present throughout the
meeting, a roll call is to be made by the chairperson before the
commencement, in between after every break and at the time of when
the meeting is being concluded. In case the quorum is not present then
the meeting will be called off.

Chairman
A meeting is chaired by a chairperson. The chairperson is also known as the
chairman and is responsible to control the proceedings of the meeting. He
introduces and concludes the meetings. The chairperson has to ensure that
proper notice is served to the members of the meeting and has to go through
the minutes of the last meeting in the beginning of each meeting. He ensures
that the meeting takes place and gets over within the time prescribed for it.
He keeps order and facilitate the meeting. It is the duty of the chairman to
ensure that each member of the meeting gets an equal opportunity to share
their views. The chairperson receives motions and puts votes on such
motions. The chairperson also has a right to cast a vote in the meetings. In
case there is a tie, the chairman can cast his final vote and declare the result.
The chairman of the company is also the chairman of the Board and in case if
there isn’t a chairman in a company then the directors may choose one of
them to be a chairman.

Voting Rights
In case, there is a matter which needs to be decided on in the meeting, it is
done by the votes of the members of the meeting. According to Section
50(2), every member who is limited by company shares and holds equity
share capital will have a right to vote on all the resolutions which lie before
the company. Section 188(1) states that the members who are entitled to
vote shall have voting rights on a poll in proportion to the shares held by him
to the paid-up equity share capital of the company.

The members of the company who are limited by shares and holds
preference share capital have a right to vote on polls in which the resolution
that is placed before the company directly affects the right of the member
related to his preference shares. The members of the company also have a
right to vote on resolutions such as winding up of the company, for
repayment or for reduction of the company’s equity or preference share
capital. Voting polls are conducted in a meeting to pass a resolution. The
procedure is preceded by the chairman. The common methods used for
voting is by showing or raising hands, voice votes, raising method (by
standing for votes in against or for the motion), ballot, a proxy or postal
votes, etc.

Resolutions by Postal Ballot

According to Section 110 of the Companies Act, a postal ballot is a method of
voting which is used when a member who is entitled to vote cannot be
physically present to vote. In such a circumstance, the member who is
entitled to vote can send his vote by posting it. Postal ballot refers to the
method of voting by post. This method enables members to vote, who
otherwise would not have been able to because of their physical absence.

The postal ballot can be used for voting in meetings except for when the poll
is for deciding on ordinary business or in a case where a business in which it
is important to attend and hear directors or auditors in the meeting. When it
is decided that the resolution placed before the company will be passed by
postal ballot, it shall send a notice regarding it to all the members of the
meeting annexed with a draft resolution in which reasons for the poll are
explained. They are requested to send their votes on the motion. The method
of postal ballot includes voting by post or through any electronic means. The
vote shall be sent within 30 days from the date on which the notice for the
passing of the resolution was sent to the members.
The vote can be sent through a registered post, courier service, speed post or
by electronic means such as email. Postal ballot can’t be used in a case
where the company is a one-person company or in case the company has up
to 200 members.

Electronic Mode
Voting for a resolution by electronic means is known as casting vote by
electronic mode or electronic voting. Voting by electronic mode includes
voting by punched cards, optical scan voting system and specialized voting
kiosks, telephones, private computer networks, internet, etc. Section 108 of
the Companies Act includes the provision for electronic mode of voting. A
company listed under the Companies Act, 2013, having 1000 or more
shareholders should provide to its members, the facility of casting vote
through electronic mode. A member gets the right to vote even if they are
not physically present in a meeting through electronic modes. The electronic
mode of voting can be used in place of the postal ballot. The electronic mode
of voting is more convenient and time-saving.

Representation of Government in Meetings of the

Companies
A member can be appointed by the Government to attend meetings of the
company in case the Government is a member of the company. The member
appointed can be any person who the Government thinks to be fit to attend
the meeting. The person who is appointed as a representative of the
Government shall attend the meeting as any other member of the meeting
and shall exercise similar rights and powers.

Kinds of Resolution
A resolution can be defined as a decision which is taken by limited company
directors or shareholders and is legally binding. A resolution can be passed
by the members of the meeting if a majority of votes are received in favour
of the resolution. There are three kinds of resolutions namely, ordinary
resolutions, special resolutions and written resolutions.

 Ordinary resolutions: refers to the resolutions that can be passed

by a simple majority. It can be used for all kinds of matters unless
there’s a need to for special resolution. The ordinary resolutions are
generally filed with a government body i.e. Companies House.
 Special resolutions: the resolutions which are needed to be
passed by a majority of at least 75% of the total votes in favour of
the resolution at a general meeting is referred to as special
resolutions. It is generally used in cases where a resolution can’t be
 passed by an ordinary resolution and consists of special or
extraordinary matters.
 Written resolutions: it is used when the resolution which needs to
be passed is an ordinary resolution or a simple resolution but
doesn’t need a general meeting for it. It is done by shareholders by
simply signing and casting their votes for a resolution. In case the
resolution is an ordinary resolution then it can be passed by a simple
majority and in case of a special resolution, 75% of votes are
needed.

Circulation of Members’ Resolutions

The chairperson who is elected by the board precedes the meeting. In case,
the chairperson is not available then, the meeting is to be preceded by the
Managing Director. Where it is agreed by at least one-third of the total
directors of the company to propose a resolution under circulation in order to
be decided in a meeting, it is the chairperson’s responsibility to put the
resolution for consideration. The proposed resolution should be sent in a draft
together with other necessary documents to all the members of the meeting
on the same day. The draft of the proposed resolution can be passed and
circulated to the members of the meeting by handing it over to them, by
speed post, by courier, by email or any other recognized electronic means.
The resolution which is proposed to be passed should be explained in a note
and sent along with the draft of the resolution to the members of the
meeting. When the resolution is approved by a majority then the resolution is
passed.

Minutes
The minutes of a meeting is an essential document in which all the points,
discussions, decisions which were taken in the meeting are recorded. It is an
official document and is mandatorily referred to before starting a new
meeting. Minutes are final when it is approved by the members of the
meeting and signed by the chairperson. Minutes are written in a factual
manner which gives the gist of the meeting. It generally comprises of details
of meeting such as the date of the meeting, members who attended or failed
to attend the meeting, proposed motions and amendments in the meeting,
the proposer of such motion and members who approved it, details of the
procedure of voting, recommendations and decisions taken in relation to the
motion, etc.

Publication of Reports and Proceedings

According to Section 121 of the Companies Act, every public listed company
is needed to prepare a report for each annual general meeting. The report is
further needed to be filed with the Registrar within 30 days of the annual
general meeting.
The other companies also have to inform the registrar about the proceedings
of meetings and contracts which they entered into under Section
193(2) under the Companies Act, 2013.

Service of Documents on Members

A document can be served on members or officers of the company according
to Section 20 of the Companies Act, 2013. The document which needs to be
served can be sent to the member or officer of the company at the registered
office of the company. The document needs to be served by registered post,
courier service, by manually dropping it in the office, or by a recognized
electronic means. If the member prescribes a mode of delivery of the
documents, then the documents should be delivered to him through that
mode. The cost of delivery is to be paid by the member in an annual general
meeting for the prescribed mode of delivery.

Service of Documents on the Company

The service of documents on the company is included under Section 20 of the
Companies Act, 2013. A document can be served to a company by sending it
to the company at the registered office through a registered post, courier
service, by dropping it at the registered office or by a recognized electronic
means. Electronic means includes transmission of documents by registered
email id, or such other means by which the identity of the sender can be
recognized.

Meeting of Audit Committee

An audit committee consists of board of directors of each listed company and
the companies similar to such listed companies that are prescribed under the
Companies Act. The committee must mandatorily have a minimum of three
directors with independent directors forming a majority. The members of the
audit committee and the chairperson must be in a condition to read and
understand the financial statements that are put before the committee.

Section 177 of the Companies Act, 2013 deals with the Audit Committee.

It is desirable for the Audit Committee to meet at least 4 times a year. The
meetings are preceded by the chairman. The quorum exists when the
chairperson and at least one other member is present in the meeting. The
Group’s Chief Financial Officer (CFO) serves as the secretary of the meetings.
All the members of the Board and the Chief Executive Officer of the company
are entitled to attend meetings of the audit committee. It is the Audit
Committee’s responsibility to prepare a schedule for an annual meeting. The
schedule prepared must include the main issues of the agenda that is
decided to be taken up in the meeting. The financial statements and interim
reports which is related to resolution or matter discussed in the meeting have
to be given to the members of the meeting at least before 24 hours from the
meeting. Minutes of the Audit Committee’s meetings are required to be
drawn up without any delay and it should be signed by the Chairman and the
secretary.

Difference between the board of directors and

the board of governors
The Board of Governors mainly serves to coordinate volunteer activity and
acts as a bridge between communities and the members of the organization,
staff and the management of that organization.

There is not much of a difference between the board of directors and the
board of governors.

The difference both depends on the bylaws of the institution or organisation.

The responsibility between both is the same, such as:

 Hire and fire executive management.

 To form company policy on the distribution of dividend.
 Adopting required by laws.
 To form a company mission and vision.
 Overseeing management.
 Appropriate use of donation and funding

*Foss V. Harbottle*
Foss v. Harbottle lays down the basics of the non-interference principle. The reasons for the
rule is that, if there is a complaint on a certain thing which the majority has to do if there is
something done irregularly which the majority has to do regularly or if there is something
done illegally which the majority has to do legally, then there is no use to have a litigation
over such thing. As in the end, there will be a meeting where the majority will fulfil their
wishes and make decisions.

Benefit and Justification

The benefit and the justification of the decision of the case are:
 Recognises the country’s legal personality
 Emphasises the necessity of the majority making the decisions
  Avoid the multiplicity of suits.

Dividend
Companies rely on funds to manage the affairs of their business
successfully. Shareholders in a company play a vital role in raising
funds, and in that process, they become its stakeholders. They
exercise control over the share of profits in proportion to the money
they invest. Dividend is known as the share of profit by
shareholders. Shareholders are also considered the owners of the
company; therefore, they are entitled to get a dividend. There is not
an exact definition of the dividend in the Companies Act, 2013.
Under section 2(35), it merely mentions dividends as “any interim
dividend.” With a view to distribute the profit among the
shareholders of the company, the Declaration and Payment of
Dividend under the Companies Act were enacted.

Meaning of “Dividend”
Dividend refers to the reward a corporation offers to its
shareholders, in cash or otherwise. Dividends can be given in
various ways, such as cash payment, inventory, or some other form.
It is determined by its Management Board and requires the approval
of the shareholders. A dividend is the distribution of a portion of the
company’s earnings, decided and managed by the company’s board
of directors, and paid to a class of its shareholders.

Understanding Dividend as per

Companies Act 2013
Dividend is defined under Section 2(35) of the Companies’ act, 2013
includes any interim dividend:
  Dividends are sum of money to be paid to the members
of the company out of the profits made by the Company.
 It is a share of profits of the company.
 It may be noted that dividend is paid to shareholders in
proportion to the amount paid-up on the share held by them.

Sources of Dividend
The basic principle of a declaration of dividend is that it shall be paid
out of profit only. As per the Companies Act, it can be paid out of the
following sources:

 From the current year’s profit

 Accumulated profit from the previous year
 Out of the money provided by the Central or State
Government for the payment of dividends in pursuance of
guarantee given

Who can declare Dividend?

As per the provisions contained in the Companies Act, 2013, all
companies can declare dividends except for those who are
registered under section 8.

Dividend is to be declared by the company at its Annual General

meeting on such rate as may be recommended by board, and it has
no power to declare dividend exceeding the amount recommended
by the board. Once declared, it becomes debt payable by the
company to its shareholders, who can sue the company for the non-
payment of the dividend.

A company cannot pass a resolution for the declaration of dividend,

without passing a resolution for the adoption of accounts. Hence, a
company shall adopt its books of accounts first and then only,
entitled to declare the dividend.
Types of dividend
There are following types of dividend:

 Interim dividend; and

 Final dividend

Interim Dividend vs. Final Dividend

As per Section 2(35) of the Companies Act 2013, an Interim

Dividend will be declared by the board any time before the closure
of the fiscal year by the Private Limited Company. Following is the
difference between interim and final dividend:

Mandatory Conditions for

Dividend Declaration
Declaring dividend out of current year’s
profit
Company has to meet the following requirements for declaring
dividend out of its profit:

 Depreciation: Depreciation shall be provided on all

depreciable assets as per the prescribed rate or its useful life
before declaring the dividend.
 Reserve: Company cannot declare or pay a dividend
unless it transfers a certain percentage of profit to reserve.
 Set off previous year loss: Company must set off the
carried forwarded previous year’s loss from the current year’s
profit before declaring the dividend.
 Free Reserve: Company shall not declare its dividend
out of any reserve other than Free Reserve.

Declaring Dividend out of Surplus Reserves

in case of insufficient current year’s profit

The company can declare the dividend out of surplus reserve in case
of insufficient current year’s profit subject to the following
conditions:

 Rate of Dividend: The dividend rate shall not exceed

the average of the declared dividend of three immediately
preceding years.
 Withdrawal amount: The total amount of withdrawal
from accumulated reserve shall not exceed 1/10th of the
paid-up share capital and free reserves as per the latest
audited financial statement.
 Utilization of money withdrawn: Such withdrawn
money from accumulated reserve shall be first used to set off
the previous year’s loss before declaring a dividend for the
current year.
 Balance: Balance of surplus reserve after withdrawal
shall not fall below 15% of its paid-up share capital as per its
latest financial statement.

Circumstances under which dividend is not

required to be paid
  In case dividend cannot be paid due to operation of law;
 In case members have given directions to the company
which cannot be complied with;
 In the event of dispute regarding the payment of
dividend;
 In case company has adjusted dividend against amount
due from the shareholders;
 In case the company has made any default in compliance
with the provisions of section 73 and section 74, dividend
cannot be paid.

Provisions relating to Payment of

Dividend
The provisions under the Companies Act, 2013 provides that no
dividend shall be paid except through cash and where the dividend
is payable in cash, it can be paid by way of cheque, warrant or by
any electronic mode to the shareholder who is eligible to receive the
dividend. However, it may be kept in mind that a company, who has
defaulted in compliance with respect to the provisions of section 73
and section 74 comprising of prohibition of acceptance of deposits
from public and repayment of deposits, shall be barred to declare
dividend.

The amount of the dividend (Including the interim dividend) must be

deposited in the bank in a separate account in five days from the
date such declaration of dividend is made. The dividend shall be
payable to the eligible shareholder by way of cash.

Procedure to be followed for

dividends declaration:
  Issuance of 7 days’ advance notice period under Section
173 of the Companies act, 2013 for an annual financial
meeting of the board of directors
 Advance 2 days’ notice to the stock exchange where
company’s securities are places in case of a listed company
 The resolution needs to be passed in an annual board
meeting for dividend division and issuance
 Prepare a statement of dividend
 To ensure that annual dividend tax is paid to the
concerned authority
 Open a separate bank account for dividend division
 Transfer dividend to shareholders as per their
shareholding pattern

Punishment for Failure to

Distribute Dividend as per
Companies Act 2013 (Section
127)
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 2 years and with fine which shall
not be less than 1000 rupees for every day during which such
default continues and the company shall be liable to pay simple
interest at the rate of eighteen per cent per annum during the
period for which such default continues.

Wrapping Up – Conclusion
Although, distribution of dividends acts as a booster to the
shareholders and indicates that the company is doing well and has
generated good profits.