Unpaid/Unclaimed Dividends

Unpaid/Unclaimed Dividends with Company: Know Provisions & what you can do

To judge or to say a company is doing well ‘financially’, specifically dividend policy is to be checked. Declaring dividends and making the payment on time, places a company into positive remarks.  The ability of the company to pay steady dividends among other important factors makes the shareholder fond of keeping the ownership vested in the company.

 But what if the company retains the dividend amount after the declaration and keep its shareholder awaiting for distribution?

As a shareholder, what can you do as per law in such a situation?

In the Companies Act, 2013, Section 123 to 127 deals with provisions for declaration & distribution of dividends by Companies. The recommendation for a declaration of dividends to shareholders is made by the Board of Directors (BOD) of the company which is to be considered in the Annual general meeting (AGM). Once declared interim or final dividend as the case maybe it becomes the liability of the company to pay the dividends to shareholders in a time-bound manner. If declared by the company, the shareholders are also expected to claim their right of dividend distribution as per the provisions of the Act.

Declaration of dividends (Section 123 of  Companies Act 2013)

The Board of Directors (BOD) during their Annual General Meeting (AGM) can declare for dividends out of surplus profits or past reserved profits of the company they hold. While declaring dividends they should ensure dividends being declared are out of profits and calculated after appropriation of depreciation, transfer in reserve and after adjustments of past losses.

Treatment of  Unpaid/Unclaimed Dividends – (Section 124, Companies Act 2013)

It is obligatory for the company after the declaration of dividends to follow necessary steps for different situations as follows:

  1. To transfer the amount of dividend so declared to the shareholders within 30 days after approval of the same in the annual general meeting.
  2. To transfer the amount of undistributed dividends or total dividend amount which is left unclaimed by shareholders within 7 days after completion of 30 days period within which the shareholders are to be paid, to a separate bank account opened in a scheduled bank by name of ‘Unpaid Dividend Account’. In case of non-transfer to Unpaid Dividend Account within the said period of 7 days, the company will be obliged to pay 12% interest on the amount of unclaimed dividends to the rightful claimants on a proportionate basis.
  3. To communicate the Unpaid/Unclaimed dividend amount left with the company, such a company has to prepare the statement containing a list of non-claimers with their last addresses known placed on the website of the company or any approved website of government as the case may be.
  4. To pay the corresponding dividend amount to respective shareholders, if later claims for dividends are received.
  5. To transfer the shares along with the amount of  Unpaid/Unclaimed dividends left in the Unpaid Dividend Account after 7 years along with interest earned, to the Investor Education and Protection Fund (“IEPF”) made under Section 125(1) of the Companies Act, 2013.
  6. To file Form IEPF – 1 with requisite details and to obtain a statement of such transfer made to IEPF as per Section 125(1) from the fund manager involved in the transfer and submit it to authorities within 7 days of filing Form IEPF -1.

Any disregard or default of the above provisions will result in a penal fine of Rs 5 lakhs extending to even Rs 25 lakhs or imprisonment of any officer involved.

The claim of Dividends by Shareholders – ( Section 125, Companies Act 2013)

Until transfer of shares with respect to Unpaid/Unclaimed dividends to IEPF (Investor Education and Protection Fund), dividends can be claimed from the appropriate Registrar & Transfer Agent (“RTA”) or directly by applying through the company website.

Once transferred to IEPF, the shareholder has to claim for both the -transfer of shares back to shareholders and the dividends along with interest accrued from IEPF filling the Form IEPF -5 available on www.iepf.gov.in.

On filling the Form IEPF -5, a copy of it is to be sent to the company for verification of the claim. The Company within 15 days of receipt of the application form will send the verification report of the IEPF.

On acceptance of the application and the verification report, the IEPF will issue a refund sanction order in name of the claimant to the Competent Authority for the transfer of shares and other authorities concerning payment of dividends accrued.

Disposal of all claim application is done by IEPF within 60 days of receipt of verification report from the company.

Please provide in chart form along with time frame also,  as the dividend can be claimed from the company and filing of required IEPF E-form.

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