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CS Executive · Company Law and Practice · Distribution of Profits

Arjun Steels Ltd has failed to comply with the provisions of sections 73 and 74 of the Companies Act, 2013 relating to deposits, and the failure continues. A shareholder asks whether the company may still declare a dividend on its equity shares. What is the correct position?

The company cannot declare any dividend on its equity shares while the default under sections 73 and 74 continues. Section 123(6) imposes this bar for as long as the failure persists, irrespective of reserves or Board consensus.

  1. AIt may declare dividend if it has adequate free reserves
  2. BIt may declare dividend only if paid by cheque
  3. CIt may declare dividend if the Board passes a unanimous resolution
  4. DIt cannot declare any dividend on its equity shares so long as the failure continuesCorrect

Explanation

Section 123(6) says a company which fails to comply with sections 73 and 74 shall not, so long as the failure continues, declare any dividend on its equity shares. Free reserves, the mode of payment or a unanimous Board resolution do not remove this bar.

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