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CS Executive · Company Law and Practice · Distribution of Profits

Sunrise Textiles Ltd has earned a profit of Rs 40 lakh in the current year. Its Board wants to declare a dividend, but the company has brought-forward losses from earlier years that were not set off. Under the Companies Act, 2013, what is the position?

A company cannot declare dividend until carried-over previous losses and depreciation not provided in earlier years are set off against the current year's profit. Only after this set-off can the remaining profit be considered for dividend under Section 123.

  1. ADividend may be declared out of current-year profit regardless of earlier losses
  2. BDividend cannot be declared unless carried-over previous losses and unprovided depreciation are set off against the current year's profitCorrect
  3. CDividend may be declared only if the Central Government approves
  4. DDividend may be declared only as an interim dividend

Explanation

Section 123(1) contains a proviso that no company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against the profit of the current year. Option A ignores this proviso. The other options invent conditions that are not in the section.

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