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CS Executive · Company Law and Practice · Distribution of Profits

Orion Pharma Ltd has failed to comply with the provisions of sections 73 and 74 on deposits and the default is continuing. It has ample profits and a Board keen to reward shareholders. Which statement is correct?

The company cannot declare any dividend on its equity shares while its failure to comply with sections 73 and 74 continues. Availability of profits, set-off of losses or the mode of payment does not remove this statutory bar.

  1. AIt may declare dividend on equity shares only if it pays by cheque
  2. BIt may declare dividend on equity shares after setting off carried over losses
  3. CIt may declare dividend only on equity shares if the Central Government guarantees it
  4. DIt cannot declare any dividend on its equity shares so long as the failure continuesCorrect

Explanation

Section 123(6) provides that a company failing to comply with sections 73 and 74 shall not, so long as the failure continues, declare any dividend on its equity shares. Profits, set-off of losses or mode of payment do not cure this bar. A government guarantee relates to a separate source of dividend and does not lift the restriction.

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