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CA Intermediate · Corporate and Other Laws · Declaration and Payment of Dividend

At the AGM of Orchid Biotech Ltd., shareholders pass a resolution recommending a final dividend of Rs 3 per share, whereas the board had recommended Rs 2 per share. The chairman asks about the legal position. Which is correct?

The shareholders cannot declare a dividend higher than the board recommended. The company in general meeting may declare a dividend equal to or lower than the board's recommendation, so only Rs 2 per share is valid, even if a special majority supports Rs 3.

  1. AThe resolution is valid, since members hold the supreme power
  2. BThe company in general meeting may declare a dividend that is not higher than the amount recommended by the boardCorrect
  3. CThe company may declare the dividend at Rs 3 if more than 75% shareholders agree
  4. DThe board's recommendation is merely advisory and may be exceeded by special resolution

Explanation

Under the Companies Act, the company in general meeting may declare a dividend but cannot declare a dividend higher than that recommended by the board; it may reduce but not increase it. So the Rs 3 resolution is invalid beyond Rs 2. A special resolution cannot override this restriction.

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