This article is written by Ms Khushi Sarkhedi , a 1 year BA.LLB student from AURO university .
Legislative background :
Clause 124 — This clause corresponds to Section 205A of the Companies Act of 1956 and seeks to provide that if the dividend is not paid or claimed within thirty days, the company must transfer the total unpaid or unclaimed amount to an Unpaid Dividend Account to be opened by the company in a scheduled bank within seven days. The company must prepare a statement of names and unpaid dividends and post it on its website as well as any other website approved by the Central Government in the prescribed manner. In the event of a failure to transfer the funds, the company must pay interest on the amount that has not been transferred.be entitled to claim them in accordance with prescribed procedure.
Introduction :
An unpaid dividend, also known as a Dividend Payable, is a dividend declared by a company but not paid to stockholders. Dividends are profits distributed by a company to its shareholders. When a company makes a profit, it distributes it to its shareholders. An unpaid dividend is one that the company declared but did not distribute to stockholders. An unpaid dividend exists between the time a company declares dividends and the time shareholders receive their dividends. The company is required to deposit the dividend amount in a separate bank account within five days of its declaration. If a company declares a dividend but it is not paid to or claimed by any shareholder entitled to the payment of the dividend within 30 days of the declaration, the company shall, within seven days of the expiry of the said period of 30 days, transfer the total amount of dividend which remains unpaid or unclaimed to a special bank account to be opened by the company in that behalf in any scheduled bank to be known as the “Nuclei Dividend Account.”
To avoid opening new accounts and transferring funds, the scheduled bank may be advised to rename the said dividend account Unpaid Dividend account. To avoid confusion, the Dividend / Unpaid Dividend Account may be opened with the company name and year of declaration as prefixes, for example, “Dividend Account – XYZ Limited – 2015” / “Unpaid Dividend Account – XYZ Limited – 2015”.
Section 124 of the Companies Act 2013 addresses issues concerning the unpaid dividend account. This section provides for the transfer of unclaimed or unpaid dividends to the company’s special account at the designated bank. This account is referred to as an unpaid dividend account in this section. Section 124 also specifies the time frame for carrying out such an undertaking.
Time Requirements For Opening Unpaid Dividend Account:
According to the said section, if the declared dividends remain unclaimed after the prescribed time period, i.e. 30 days, the company must route such dividends in the special account within seven days of the said time period’s expiration, i.e. 30 days. As a result, an Unpaid Dividend Account is a voluntary account opened by the company to route unclaimed dividends.
Name of shareholders to be hosted on website:
Within 90 days of making any transfer of an amount to the Unpaid Dividend Account, the company shall prepare a statement containing the names of the shareholders who have not been paid or claimed dividend, their last known addresses, and the unpaid dividend to be paid to each person, and place it on the company’s website, if any, and also on any other web-site approved by the Central Government for this purpose, in such form, manner, and other particulars. Because sub-section (2) of Section 124 has not been notified, the forms, manner, and other particulars have yet to be prescribed
Imposition Of Interest In Case Of Non-Transfer Of Amount:
If an error is made in transferring the amount referred to in sub-section (1) to the Unpaid Dividend Account, it shall pay interest at the rate of 12% per annum from the date of such default in proposition to the amount awaiting transaction. The interest accruing on such amount will benefit the company’s members in proportion to the amount owed to them.
Accounting Implications of Unpaid Dividends:
Unpaid dividends have certain consequences for a company, as do unclaimed dividends. On a company’s balance sheet, both unpaid and unclaimed dividends are recorded as current liabilities. When unpaid and unclaimed dividends are paid, the current liabilities account is cleared. Furthermore, the total amount that a company is to pay as dividend is recorded as dividends payable; this account is reversed only after dividends have been distributed to shareholders.
Entitlement of dividend from unpaid dividend account:
Anyone claiming to be entitled to money transferred to the company’s Unpaid Dividend Account may apply to the company for payment of the money claimed. There is no such application form. However, an application containing all pertinent information may be prepared and submitted to the company. After reviewing the application details, the company may pay the dividend amount to such person from the unpaid dividend account.
Facility For Shareholders To Claim Unpaid Dividend:
Section 124 of the Companies Act 2013 also provides a facility for shareholders to claim unpaid dividend amounts routed to the Unpaid Dividend Account under sub-section 1
Transfer Of Unclaimed Dividend To Funds Set Up Under Subsection (1) Of Section 125:
Any dividend amount routed to the Unpaid Dividend Account that remains unclaimed or unpaid for seven years from the date of transfer shall be channelled by the entity to the fund established under subsection (1) of section 125, along with any interest accrued thereon.
The company shall send to the authority that manages the said fund a statement in standard form containing the details of such transfer. The authority shall issue a receipt to the company as proof of such transfer.
Transfer Of Unclaimed Shares To The Investor Education And Protection Fund:
All shares whose dividend has not been claimed or paid for seven years or more will be routed to the Investor Education and Protection Fund. The transaction must be accompanied by a statement containing the following information:
The claimant of such transferred shares has the right to claim the share from the said fund in accordance with such procedure and upon submission of the required documentation. No dividend shall be transferred to the Investor Education and Protection Fund if it is claimed or paid at any time during the preceding seven-year period.
The Central Government established the Investor Education and Protection Fund to protect investors’ interests and raise awareness. It was formed in accordance with Section 125 of the Companies Act of 2013. Unclaimed or unpaid sums belonging to the respective shareholders are polled and transferred to them.
According to the Act, the Investor Education and Protection Fund is used for a variety of purposes.
Constitutionality of IEPF:
In the case of Nivedita Sharma v. The Industrial Credit & Investment Corporation Of India & ors [W.P.(C) No. 1017/2009 decided on 07.07.2011, reportable], the Delhi High Court, while noting the provisions of having no claim after a period of 7 years, upheld the constitutionality of the overall provisions related to the establishment of IEPF . The limitation period is appropriate. Section 205 C is a beneficial and honourable provision. It was enacted to ensure that a company does not unjustifiably and unduly enrich itself because depositors failed to stake claim and were not paid for seven years from the date the amount became due. We see no reason to believe that the aforementioned provisions are unconstitutional or violate Article 14 or any other provision of the Constitution. It is not possible to claim that the aforementioned provisions are flawed and violate the fundamental rights guaranteed by the Constitution To invalidate Section 205 C is to invalidate a worthy and meritorious piece of legislation that is, on the whole, beneficial and advantageous.
Conclusion :
The limitation period is appropriate. Section 205 C is Section 124 of the Companies Act 2013[1] and provides grounds for the transparent management of the company’s unclaimed or unpaid dividends. It also seeks to protect unclaimed dividends from misuse and improper transfer. It safeguards shareholders’ and companies’ interests in the event of a dispute over fund management or dividend distribution. The establishment of an Unpaid Dividend Account under this Section serves as a safe fund reservoir for the company, ensuring proper management of unclaimed dividends.
Citation :
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