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Section 123 of the Companies Act 2013: Declaration of Dividend

SECTION-123 (Declaration of Dividend) under CHAPTER-VIII (Declaration and Payment of Dividend) of the Companies Act, 2013


(1) No dividend shall be declared or paid by a company for any financial year except—

(a) out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2), or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with the provisions of that sub-section and remaining undistributed, or out of both; or

(b) out of money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government:

Provided that a company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company:

Provided further that where, owing to inadequacy or absence of profits in any financial year, any company proposes to declare dividend out of the accumulated profits earned by it in previous years and transferred by the company to the reserves, such declaration of dividend shall not be made except in accordance with such rules as may be prescribed in this behalf:

Provided also that no dividend shall be declared or paid by a company from its reserves other than free reserves.

Provided also that no company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year.

(2) For the purposes of clause (a) of sub-section (1), depreciation shall be provided in accordance with the provisions of Schedule II.

(3) The Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared:

Provided that in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years.

(4) The amount of the dividend, including interim dividend, shall be deposited in a scheduled bank in a separate account within five days from the date of declaration of such dividend.

(5) No dividend shall be paid by a company in respect of any share therein except to the registered shareholder of such share or to his order or to his banker and shall not be payable except in cash:

Provided that nothing in this sub-section shall be deemed to prohibit the capitalisation of profits or reserves of a company for the purpose of issuing fully paid-up bonus shares or paying up any amount for the time being unpaid on any shares held by the members of the company:

Provided further that any dividend payable in cash may be paid by cheque or warrant or in any electronic mode to the shareholder entitled to the payment of the dividend.

(6) A company which fails to comply with the provisions of sections 73 and 74 shall not, so long as such failure continues, declare any dividend on its equity shares.







Extra Notes for Readers

(1) The Companies Act, 2013 received the assent of the President on the 29th August, 2013 (Published in the Gazette of India, Extraordinary, Part II - Section 1 by Ministry of Law and Justice, Legislative Department on 30th August, 2013) - link


(2) Section 123 of the Companies Act 2013 was notified by MCA Notification S.O. 902(E) dated 26th March 2014 (w.e.f. 1st April 2014) - link

(3) Relevant rule(s) of / Further, refer the Companies (Declaration and Payment of Dividend) Rules, 2014 - link
  • Rule 3 - Declaration of dividend out of reserves
[Also check amendments, if any, to the Companies (Declaration and Payment of Dividend) Rules, 2014]

(4) Section 123 of the Companies Act 2013  was modified by the Companies (Amendment) Act, 2015 as under (w.e.f. 29th May, 2015 - link):
In section 123 of the principal Act, in sub-section (1), after the third proviso, the following proviso shall be inserted, namely:— 
   “Provided also that no company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year.”.
(5) Govt. Companies - MCA Notification G.S.R. 463(E) dated 5th June 2015 - link


Sl. No.
Chapter Number/Section number/Sub-section(s) in the Companies Act, 2013
Exceptions, Modifications and Adaptations
6.
Chapter VIII, sub-section (1) of section 123
Shall not apply to a Government Company in which the entire paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments.
7.
Chapter VIII, sub-section (4) of section 123
Shall not apply to a Government Company in which the entire paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments or by one or more Government Company.


(6) Nidhis(Nidhi Companies) - MCA Notification G.S.R. 465(E) dated 5th June 2015 - link

Sl. No.
Provisions of the Companies Act, 2013
Exceptions, modifications and adaptations
6.
Sub-section (5) of Section 123
Shall apply, subject to the modification that any dividend payable in cash may be paid by crediting the same to the account of the member, if the dividend is not claimed within 30 days from the date of declaration of the dividend.





This page was last updated on 18th March, 2017.

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