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CMA Final · Corporate and Economic Laws · Dividends

Mehta Foods Ltd. declared a dividend. Shareholder Mr. Rao had given a direction for payment to a bank account which was closed, and the company informed him that the direction could not be complied with. The dividend remained unpaid beyond thirty days. Under Section 127:

No offence is deemed committed. The proviso to Section 127 exempts a company where a shareholder's payment direction cannot be complied with and that fact has been communicated to the shareholder, so the penalty of imprisonment and daily fine does not apply.

  1. ADirectors are punishable with imprisonment for two years automatically
  2. BNo offence is deemed committed, as the direction could not be complied with and this was communicated to himCorrect
  3. CAn offence is committed only if the dividend exceeds Rs 1 lakh
  4. DThe company must pay 18% interest and directors are fined Rs 1,000 per day regardless

Explanation

The proviso to Section 127 states that no offence is deemed committed where a shareholder's direction regarding payment cannot be complied with and this has been communicated to him. Hence the penal consequence does not follow, and no monetary threshold exists in the section.

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