Dividends are payments made to the investors or shareholders out of the profits earned by the company in the form of return on investment made by the investors in the proportion to the amount of paid up capital held by them. As per Section 2(35) of the Companies Act, 2013 the term Dividend includes interim dividend. A company shall declare dividends out of profit of the company which is not retained in the business for the financial year or out of undistributed profit of any previous financial year or out of both. For the calculation of distributable profit, depreciation shall be calculated as per Schedule II.The Company may transfer a portion of the dividends to the reserve before declaration of the dividends. If Company has no adequate profits in a financial year or accumulated profits to distribute dividends then it may declare dividends from the free reserves. The amount of dividend and interim dividend shall be deposited in a separate account in a scheduled Bank within five days from the date of declaration of such dividend. PROVISIONS RELATED TO DIVIDENDS AS PER COMPANIES ACT, 1956 As per the old Companies Act 1956, Dividend was payable in cash or by cheque or warrant. The company may compulsory transfer such percentage of the profits to the reserves as per the Company Rules 1975: Rules also specify that the Company can transfer more than 10% of profit to reserves provided that following conditions are satisfied: The minimum distribution is equal to the average rates of dividends for the last 3 financial years. Where a bonus share has been issued during the financial year then minimum distribution shall be average of the amount of dividend for the last three financial years. Where the net profits after tax for the financial year are lower by 20% or more than the average net profits after tax for the last two financial years, then it will not be necessary to ensure minimum distribution for making a higher transfer to the reserves. As per Section 205 of the Companies Act 1956 which governs declaration and distribution of the dividends specifies that depreciation for the entire year has to be provided before a dividend is declared or paid. Depreciation shall be provided either at the rate specified in Schedule XIV or any other basis approved by the Central Government. The proviso (c) of Section 205(1) of the Companies Act, 1956 empowers the Central Government to waive in any particular case, the requirement of providing for depreciation. Separate bank account for transferring the amount of the dividend needs to be opened. Dividend will have to be remitted within 30 days of declaration. And other formalities like tax payments will be completed within 7 days of the declaration. If dividend is not paid within 30 days of its declaration then penalty will be imposed as per Section 207 of the Companies Act 1956. As per Section 205 A of the Companies Act, 1956 specifies that the dividend declared should be deposited within 5 days of its declaration and any unclaimed divided need to be transferred to a separate account within 7 days from the expiry of the time span of 30 days of declaration as specified. For the period of the 7 years the unclaimed dividend will remain in that specified account and then it will be transferred to the Investors protection fund established under Section 205-C of the Companies Act 1956. PROVISIONS RELATED TO DIVIDENDS AS PER COMPANIES ACT, 2013 Section 123 of Companies Act, 2013 governs declaration of dividend out of the profits of the company for a financial year or undistributed profits for previous financial years. In case of any guarantee given by any Government (Central or State) then the company may declare dividend out of money provided by that government for payment of dividend. Mandatory transfer to reserve is not required under Companies Act 2013. Companies are free to transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves.Dividend payable in cash can be paid by cheque or warrant or in any electronic mode.No dividend shall be paid from its reserves other than free reserves. SECTION 127 OF COMPANIES ACT, 2013 - PUNISHMENT FOR FAILURE TO DISTRIBUTE DIVIDENDS: Where a dividend has been declared by a Company but has not been paid or the warrant in respect thereof has not been posted within 30 days from the date of declaration to any Shareholder entitled to the payment of the Dividend then following punishment will be imposed: FOR DIRECTOR: Every Director of the Company shall, if he is knowingly a party to the default, be punishable. Punishment: Max. Imprisonment – 2 Years, and Fine of Min. 1,000 per day of default. FOR COMPANY: The Company shall be liable to pay simple interest at 8% p.a. during the period for which such default continues. No offence shall be deemed to have been committed, if the non–payment of dividend is due the following: (a) Where the dividend could not be paid by reason of the operation of any law. (b) Shareholder has given directions to the Company regarding the payment of dividend, and those directions cannot be complied with and the same has been communicated to him. (c) Dispute exists regarding the right to receive the Dividend. (d) Lawfully adjusted by the Company against any sum due to it from the Shareholder. (e) For any other reason which was not due to any default on the part of the Company. As per Section 124 of the Companies Act 2013,Where a dividend has been declared by a company but has not been paid or claimed within thirty days from the date of the declaration to any shareholder entitled to the payment of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days, transfer the total amount of dividend which remains unpaid or unclaimed to a special account to be opened by the company in any scheduled bank known as unpaid dividend account. The amount in the Unpaid Dividend Account of companies transferred to the Fund established by the Central Government known as Investor Education and Protection Fund as per Section 125 of the Companies Act, 2013.This fund will be utilized for the refund of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon or promotion of investors education, awareness and protection or reimbursement of legal expenses incurred in pursuing class action suits etc. CONCLUSION: Dividends are usually payable for a financial year after the final accounts are ready and the amount of distributable profits is available. The Balance Sheet, Annual Report and Annual Return of the company should make separate disclosures of the amount of Dividend lying in the unpaid or unclaimed Dividend account for seven years. Annual Return and Annual Report should also disclose the amount transferred to Investor Education and Protection Fund.