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

Dhruv Industries Ltd's Board wishes to declare an interim dividend during the financial year. The company has made a loss during the period from the start of the year up to the end of the quarter preceding the declaration. Which statement is correct?

If the company has incurred a loss up to the quarter before declaration, the Board may still declare interim dividend, but the rate cannot exceed the average rate of the three preceding financial years. No special resolution is required and the Board's power is not unlimited.

  1. AThe interim dividend rate cannot be higher than the average dividend rate of the last three financial yearsCorrect
  2. BThe interim dividend may be declared at any rate because the Board has full power over interim dividends
  3. CThe interim dividend can be declared only if shareholders pass a special resolution
  4. DInterim dividend cannot be declared at all in any circumstance when there is a loss in the year

Explanation

The Board may declare interim dividend during the year out of surplus in the profit and loss account and out of profits of the financial year up to the quarter preceding the declaration. If there is a loss in that period, the interim dividend rate cannot exceed the average rate declared in the three preceding years. No shareholder resolution is needed, and a total ban is not what the Act provides.

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