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

The board of Kaveri Foods Ltd. wants to declare an interim dividend during FY 2025-26 although the company has incurred a loss in the current financial year up to the end of the quarter immediately preceding the date of declaration. The average dividend rate for the last three financial years was 12%. Which is the correct position on the maximum rate of the interim dividend?

The interim dividend may be declared but cannot exceed the average rate of the last three financial years, which is 12%. The Companies Act does not bar interim dividend in a loss period; it only restricts the rate to that average.

  1. AIt may be declared at any rate, since interim dividend is exempt from restrictions
  2. BIt must not exceed 12%, the average rate of the preceding three yearsCorrect
  3. CIt must not be less than the average rate of the preceding three years
  4. DIt cannot be declared at all in a year of loss

Explanation

Where the company has incurred a loss in the current financial year up to the end of the quarter preceding the declaration, the board may declare interim dividend, but the rate must not be higher than the average dividend rate of the last three financial years. Here, that cap is 12%. A ban on declaration is incorrect, as the law only caps the rate.

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