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

Himalaya Textiles Ltd, a company with a financial year ending 31 March, declared an interim dividend in February out of its profits. The board did not deposit the amount in a separate bank account within the prescribed period. A shareholder asks about the position of the interim dividend once declared. Which statement reflects the correct legal position under the Companies Act, 2013?

The Board of directors may declare interim dividend during the financial year, and once it is declared it becomes a debt owed by the company to its shareholders. It cannot be withdrawn, and shareholder approval in a general meeting is required only for final dividend.

  1. AInterim dividend can be declared by the Board during the financial year and, once declared, becomes a debt payable to shareholdersCorrect
  2. BInterim dividend can be declared only by shareholders in a general meeting
  3. CInterim dividend can be declared only after the close of the financial year
  4. DInterim dividend can be revoked by the Board at any time before payment

Explanation

The Board may declare interim dividend during any financial year, or at any time during the period from the closure of the financial year until the AGM. Once declared, the dividend becomes a debt of the company and cannot be revoked by the Board. Shareholders' meeting is needed only for final dividend.

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