Dividend Policy

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DIVIDEND POLICY :

DETERMINENTS VIS-À-VIS

COMPETETION

A PROJECT REPORT

Submitted to the

University of Rajasthan

Jaipur

FIVE YEAR LAW COLLEGE

(As per requirement of fifth

thth

_semester)

for the

B.A.LLB.(HONS). Examination-

B.A.LLB.(HONS).

Examination-2010

2010

Paper-V (COMPANY LAW - I)

Under

Under Supervision

Supervision of

of

Submitted by

Submitted

by

Ms.

Ms. SONY

SONY KULSHRESHTHA

KULSHRESHTHA

AJIT

AJIT YADAV

YADAV

Faculty Lecturer

Faculty Lecturer B.A.,LL.B(Hons.)B.A.,LL.B(Hons.) University of Rajasthan

University of Rajasthan V Semester (07)V Semester (07)

FIVE YEAR

FIVE YEAR LA

LAW COLLEGE

W COLLEGE

UNIVERSITY OF RAJASTHAN

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JAIPUR

CERTIFICATE

This is to certify that AJIT YADAV , a student of B.A LL.B

(hons.) V Semester, Five Year Law College, Rajasthan University,

Ja

Jaip

ipur

ur ha

has

s wri

writt

tten

en th

this

is pr

proj

ojec

ect

t ent

entit

itle

led

d

"DI

"DIVID

VIDEND

END PLO

PLOICY

ICY ::

DETERMINENTS VIS-À-VIS COMPETETIONS"

under my

supervision and guidance.

It is further certified that the candidate has done a sincere

efforts in this work on the

efforts in this work on the topic mentioned above.

topic mentioned above.

Ms. Sony Kulshreshtha

(3)

Supervisor

(4)

ACKNOWLEDGEMENT

I have written this

I have written this presentation entitled

presentation entitled

""

DIVIDEND PLOICY : DETERMINENTS VIS-À-VIS

COMPETETIONS

""

under the supervision of Ms. Sony

Kulshreshtha, Faculty Lecturer, Five Year Law

College, University of Rajasthan, Jaipur.

I find no words to

I find no words to express my sense of gratitude

express my sense of gratitude

for Ms. Sony Kulshreshtha, Faculty lecturer for

providing the necessary guidance and constant

encouragement at every step of

encouragement at every step of her endeavour.

her endeavour.

The pains taken by her in the scrutiny of the rough

draft as well his valuable suggestions to plug the

loopholes therein have not only

loopholes therein have not only helped immensely

helped immensely

in making this work see the light of the day, but

above all, have helped in

above all, have helped in developing an analytical

developing an analytical

approa

approach to

ch to this work.

this work.

I am grateful and thankful to P

I am grateful and thankful to Prof. (Mrs.) Mridul

rof. (Mrs.) Mridul

Srivastava, Director of Five Year Law

Srivastava, Director of Five Year Law College,

College,

University of Rajasthan, Jaipur for

University of Rajasthan, Jaipur for her cooperation

her cooperation

and guidance.

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Further I am grateful to my learned teachers for

their academic patronage and persistent

encouragement extended to me.

I am highly indebted to the

I am highly indebted to the office and Library

office and Library

Staff of the Five Year Law College, University of

Rajasthan, Jaipur for the

Rajasthan, Jaipur for the support and cooperation

support and cooperation

extended by them from time to time.

I cannot conclude with recording my gratefulness

to my friends for the assistance

to my friends for the assistance received from

received from

them in the preparation of this project for which

them in the preparation of this project for which II

am indebted to them.

Ajit Yadav.

B.A.,LLB.

(hons.)

V Semester

Roll No. 07

Five Year Law College

University of Rajasthan,

Jaipur

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1. 1. CertificateCertificate ii 2. 2. AcknowledgementAcknowledgement iiii 3. 3. _Introduction_Introduction 11 4.

4. Legal Provisions as regards Dividend.Legal Provisions as regards Dividend. 22 5.

5. Provision for Depreciation.Provision for Depreciation. 44 6.

6. _{a. Declaration of Dividends.}_{a. Declaration of Dividends.}

b. Interim Dividends b. Interim Dividends

5 5

7.

7. _{Payments of Dividends.}_{Payments of Dividends.} 66 8.

8. _{a. Dividend Warrants.}_{a. Dividend Warrants.}

b. Payment of Dividend out of Capital. b. Payment of Dividend out of Capital.

7 7

9.

9. _{Payment of Interest out of Capital under}_{Payment of Interest out of Capital under}

section 208. section 208.

8 8

10.

10. _{Investors Education and Protection Fund}_{Investors Education and Protection Fund}

under Section 205 C.. under Section 205 C.. 9 9 11. 11. Conclusion.Conclusion. 1010

Bibliography and Webliography Bibliography and Webliography

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INTRODUCTION

The word "dividend" comes from the

The word "dividend" comes from the LatinLatin wordword""dividendumdividendum_"_" _{meaning "the thing which is to}_{meaning "the thing which is to}

be divided among all" be divided among all"

Dividends

Dividends are payments made by aare payments made by a corporationcorporation to itsto its shareholder shareholder members. It is the portion of members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a

corporate profits paid out to stockholders. When a corporation earns a profitprofit or surplus, thator surplus, that money can be put to two uses: it can either be re-invested in the business (called

money can be put to two uses: it can either be re-invested in the business (called retainedretained earnings

earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion), or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the

of their earnings and pay the remainder as a dividend.remainder as a dividend. For a

For a joint stock companyjoint stock company, a dividend is allocated as a fixed amount per share. Therefore, a, a dividend is allocated as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion to their shareholding. For the joint stock company, shareholder receives a dividend in proportion to their shareholding. For the joint stock company, pa

payiying ng didivividedends nds is is not not anan expenseexpense; ; raraththerer, , it it is is ththe e didivivisision on of of afafteter r tatax x prprofofitits s amamonongg shareholders. Retained earnings (profits that have not been distributed as dividends) are shown in shareholders. Retained earnings (profits that have not been distributed as dividends) are shown in the shareholder equity section in the company´s balance sheet - the same as its issued share the shareholder equity section in the company´s balance sheet - the same as its issued share capital.

capital. Public companiesPublic companies usually pay dividends on a fixed schedule, but may declare a dividendusually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a

at any time, sometimes called a special dividendspecial dividend to distinguish it from a regular one.to distinguish it from a regular one. Cooperatives,

Cooperatives, on the other hand, allocate dividends according to members' activity, so their on the other hand, allocate dividends according to members' activity, so their dividends are often considered to be a pre-tax expense.

dividends are often considered to be a pre-tax expense.

Dividends are usually settled on a cash basis, store credits (common among retail

Dividends are usually settled on a cash basis, store credits (common among retail consumers'consumers' cooperatives

cooperatives) and shares in the company ) and shares in the company (either newly created shares or existing shares bought in(either newly created shares or existing shares bought in the market.) Further, many public companies offer

the market.) Further, many public companies offer dividend reinvestment plansdividend reinvestment plans, which, which automatically use the cash dividend to pu

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LEGAL PROVISIONS AS REGARDS DIVIDEND

1.

1. Right to Dividend :Right to Dividend : The dividend on preference shares is fixed and cannot beThe dividend on preference shares is fixed and cannot be increased, however large the compan

increased, however large the company’s profit may be unless the preference shares carryy’s profit may be unless the preference shares carry the right to participate in surplus profits. Equity shareholders are entitled to be

the right to participate in surplus profits. Equity shareholders are entitled to be paid apaid a dividend on shares only after all preference dividends have been paid to date.

dividend on shares only after all preference dividends have been paid to date.

2.

2. Sources out of which Dividends may be paid :Sources out of which Dividends may be paid : Section 205 provides that dividendsSection 205 provides that dividends may be declared out of

may be declared out of following three sources :following three sources :

(a)

(a)Current Profits.Current Profits.

(b) Past reserves created out of profits or credit balance in the profit and loss account (b) Past reserves created out of profits or credit balance in the profit and loss account

brought forward. brought forward.

(c) Out of money provided by the Government, if any. (c) Out of money provided by the Government, if any.

Dividends may be declared out of the profits of the company for the current year after Dividends may be declared out of the profits of the company for the current year after providing for depreciation. However, the Central

providing for depreciation. However, the Central Government may, if it thinks necessary soGovernment may, if it thinks necessary so to do in the public interest, allow a

to do in the public interest, allow any company to declare or pay dny company to declare or pay dividend for financial year ividend for financial year out of the profits of the company for that

out of the profits of the company for that year or any previous financial years withoutyear or any previous financial years without providing for depreciation.

providing for depreciation.

Further, Section 205 provides that a company

Further, Section 205 provides that a company must transfer a prescribed percentage of itsmust transfer a prescribed percentage of its profits (usually not exceeding 10%) to its reserves before declaring dividends.

profits (usually not exceeding 10%) to its reserves before declaring dividends. In this regardIn this regard rules have been framed by the

rules have been framed by the Central Government- requiring a company to transfer aCentral Government- requiring a company to transfer a minimum from its profits for that year to its reserves before declaring dividends. The rates minimum from its profits for that year to its reserves before declaring dividends. The rates are :

are :

Pe

Percrcententagage e ratrate e divdivideidend nd proproposposed ed MinimMinimum um PePercrcenentagtage e of of PrProfiofits ts to to bebe transferred to reserves transferred to reserves 1 100% % tto o 1122..55% % 22..55%% 1 122..55% % tto o 1155% % 55%% 1 155% % tto o 2200% % 77..55%% 2 200% % aannd d aabboovve e 1100%%

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Section 205 A(3) provides that dividends can

Section 205 A(3) provides that dividends can be declared out of reserves onbe declared out of reserves only in accordancely in accordance with the rules framed by the Central Government in

with the rules framed by the Central Government in this behalf. However, where a companthis behalf. However, where a companyy wishes to declare a dividend otherwise than

wishes to declare a dividend otherwise than as per these rules, it may do so as per these rules, it may do so with thewith the previous approval of the Central Government.

previous approval of the Central Government.

In the event of absence or inadequacy of profits in any year, dividend may be declared by In the event of absence or inadequacy of profits in any year, dividend may be declared by company out of accumulated past profit provided the following conditions are satisfied : company out of accumulated past profit provided the following conditions are satisfied :

1.

1. The rate of dividend declared shall not exceed the average of the rates at which dividendThe rate of dividend declared shall not exceed the average of the rates at which dividend was declared by the company

was declared by the company in the five year immediately preceding that year or 1in the five year immediately preceding that year or 10% of 0% of its paid up capital, whichever is less.

its paid up capital, whichever is less.

2.

2. The total amount to be drawn from the accumulated profits earned in previous year ndThe total amount to be drawn from the accumulated profits earned in previous year nd transferred to the reserves shall not exceed an

transferred to the reserves shall not exceed an amount equal to 1/10amount equal to 1/10ththof the sum of itsof the sum of its paid up capital and free reserves.

paid up capital and free reserves. 3.

3. The amount so drawn from general reserve, shall first be utiliThe amount so drawn from general reserve, shall first be utilized to set off the losszed to set off the loss incurred in the financial year before any

incurred in the financial year before any dividend in respect of preference or eqdividend in respect of preference or equityuity share s is declared.

share s is declared. 4.

4. The balance of reserves after such withdrawal shall not be below 15% of its paid up shareThe balance of reserves after such withdrawal shall not be below 15% of its paid up share capital.

capital.

Lastly, a company can also declares dividends

Lastly, a company can also declares dividends out of the money provided bout of the money provided by the Centraly the Central Government or a State Government for payment of

Government or a State Government for payment of such dividend in pursuance of such dividend in pursuance of guaranteeguarantee given by that Government.

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3.

3. Provision for Depreciation :Provision for Depreciation : Depreciation on assets of the company must be providedDepreciation on assets of the company must be provided before any dividend can be

before any dividend can be declared out of profits of any financial year.declared out of profits of any financial year. A provision for depreciation is the amount

A provision for depreciation is the amount written off for the wearing out of fixed assets.written off for the wearing out of fixed assets. There are two basic aspects

There are two basic aspects of the provision for depreciation to remember,of the provision for depreciation to remember, 1.

1. A charge A charge (provision) (provision) is made is made in the in the profit profit and loss and loss account in account in each accounting each accounting period for period for every depreciate asset.

every depreciate asset.

Nearly all assets are depreciate, the most important exceptions b

Nearly all assets are depreciate, the most important exceptions b eing freehold land andeing freehold land and long term investments.

long term investments. 2.

2. The total The total accumulated depreciation accumulated depreciation builds up builds up as the as the asset gets asset gets older. Unliolder. Unlike a ke a provisionprovision for doubtful debts, therefore, the total provision for depreciation is always

for doubtful debts, therefore, the total provision for depreciation is always getting larger,getting larger, until the fixed asset is fully depreciated.

until the fixed asset is fully depreciated.

The similarly in the accounting treatment of the provision

The similarly in the accounting treatment of the provision for doubtful debts and thefor doubtful debts and the provision may become apparent.

provision may become apparent.

The ledger accounting e

The ledger accounting entries for the provision for depreciation are as follows.ntries for the provision for depreciation are as follows. 1.

1. There is There is a provisia provision account fon account for each or each separate category separate category of assetof assets, for s, for example land example land andand building, furniture and fittings.

building, furniture and fittings. 2.

2. The depreciation The depreciation charge for charge for an accounting an accounting period is period is a charge a charge against profitagainst profit. It . It is anis an increase in the provision for depreciation and

increase in the provision for depreciation and is accounted as follows, with theis accounted as follows, with the depreciation charge for the period.

depreciation charge for the period. 3.

3. The balance on The balance on the provision the provision for depreciation for depreciation account is account is the total the total accumulatedaccumulated

depreciation. This is always a credit balance brought forward in the ledger account for depreciation. This is always a credit balance brought forward in the ledger account for depreciation.

depreciation. 4.

4. The fixed The fixed asset asset accounts are accounts are unaffected by unaffected by depreciation. They depreciation. They are recorare recorded in ded in thesethese accounts at cost or at their reevaluated amount.

accounts at cost or at their reevaluated amount. 5.

5. In the In the balance sheet balance sheet of the of the business, the business, the total balance total balance on the on the provision fprovision for depreciatior depreciationon account is set against the value of asset accounts to derive the net book value of the fixed account is set against the value of asset accounts to derive the net book value of the fixed assets.

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4.

4. Declaration of Dividend :Declaration of Dividend : The rate of dividend on equity shares is recommended by theThe rate of dividend on equity shares is recommended by the BOD and is declared by the

BOD and is declared by the shareholders in the AGM. The shareholder cannoshareholders in the AGM. The shareholder cannot insist ont insist on either declaration of dividend or on increasing the rate recommended by the BOD. either declaration of dividend or on increasing the rate recommended by the BOD. Section 173 requires that the declaration of

Section 173 requires that the declaration of dividend should be shown as dividend should be shown as an ordinaryan ordinary business at an AGM of company.

business at an AGM of company. Further section 217 provides that, Directors shouldFurther section 217 provides that, Directors should mention in their report to the shareholders the

mention in their report to the shareholders the amounts, if any, which they recommendamounts, if any, which they recommend should be paid by way of dividend.

should be paid by way of dividend.

From the above provisions, it is clear that dividend is declared at an AGM of the From the above provisions, it is clear that dividend is declared at an AGM of the

company. However, a company which could not declare dividend at an AGM may do so company. However, a company which could not declare dividend at an AGM may do so at a subsequent general meeting.

at a subsequent general meeting.

Further, a dividend once declared cannot be revoked, except with the consent of the Further, a dividend once declared cannot be revoked, except with the consent of the shareholders, for a declaration of dividend

shareholders, for a declaration of dividend creates a debt to the shareholders in whcreates a debt to the shareholders in whoseose favour it is declared. However, where a dividend has been illegally declared, or where favour it is declared. However, where a dividend has been illegally declared, or where events like war, imposition of fresh taxes etc., intervene

events like war, imposition of fresh taxes etc., intervene after the declaration, andafter the declaration, and

business expediency so dictates, the BOD will be justified in revoking the declaration of business expediency so dictates, the BOD will be justified in revoking the declaration of dividend.

dividend.

5.

5. Interim Dividend :Interim Dividend : A part of profits may be distributed before the accounts A part of profits may be distributed before the accounts are presentedare presented and dividends declared at the annual general meeting. Such dividend are called ‘interim and dividends declared at the annual general meeting. Such dividend are called ‘interim dividend’. Section 205 empowers the BOD of a company to declare interim dividend. dividend’. Section 205 empowers the BOD of a company to declare interim dividend. However, the board should seek the opinion of auditors before declaring any interim However, the board should seek the opinion of auditors before declaring any interim dividend, as it must amount to payment

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6.

6. Payment of Dividends :Payment of Dividends : Section 206 provides that no dividends shall be paid by aSection 206 provides that no dividends shall be paid by a company in respect of any share

company in respect of any share therein except: (a) to the registered holder of such therein except: (a) to the registered holder of such shareshare or to his order or to his bank

or to his order or to his bankers; or (b) in case a share warrant has ers; or (b) in case a share warrant has been issued in respectbeen issued in respect of share in pursuance of section

of share in pursuance of section 114, to the bearer of 114, to the bearer of such warrant or to his bankers.such warrant or to his bankers.

Thus, if a shareholder has issued a

Thus, if a shareholder has issued a mandate for payment of dividends on mandate for payment of dividends on his shares to ahis shares to a bank, the company paying the dividend to the bank accordingly, would get a good bank, the company paying the dividend to the bank accordingly, would get a good

discharge for the payment so made and the dividend shall be deemed to have been paid to discharge for the payment so made and the dividend shall be deemed to have been paid to the shareholder in cash as contemplated under section 205.

the shareholder in cash as contemplated under section 205.

Section 207 casts an obligation on the company to pay dividend, which is declared to the Section 207 casts an obligation on the company to pay dividend, which is declared to the shareholder entitled therein 30 days from its declaration. The

shareholder entitled therein 30 days from its declaration. The term payment implies theterm payment implies the act of posting of dividend warrant or cheque as provided under the law, irrespective of act of posting of dividend warrant or cheque as provided under the law, irrespective of the fact whether the shareholder concerned receives it or not.

the fact whether the shareholder concerned receives it or not.

However, the section provides for certain circumstances where the default shall be However, the section provides for certain circumstances where the default shall be excusable. These circumstances are :

excusable. These circumstances are : a.

a. Where the Where the dividend could not dividend could not be paid by be paid by reason of reason of the operation the operation of any of any law.law. b.

b. Where a Where a shareholder has shareholder has given directions given directions to the comto the company regarding pany regarding the payment the payment of of the dividend and those directions cannot be complied with.

the dividend and those directions cannot be complied with. c.

c. Where there Where there is a is a dispute regarding dispute regarding the rithe right to ght to receive the receive the dividend.,dividend., d.

d. Where the Where the dividend has dividend has been lawfully been lawfully adjusted by adjusted by the company the company against any against any sum duesum due to it from the shareholder.

to it from the shareholder. e.

e. Where, for Where, for any other any other reason, the reason, the failure to failure to pay the pay the dividend(or to dividend(or to post the post the dividenddividend warrant) within 30 days was not due to

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7.

7. Dividend Warrants :Dividend Warrants : We have mentioned above that section 205 specifically providesWe have mentioned above that section 205 specifically provides that any dividend payable in cash may be paid by cheque or warrant, and it shall be that any dividend payable in cash may be paid by cheque or warrant, and it shall be deemed to have been paid when the cheque or warrant therefore is posted to the deemed to have been paid when the cheque or warrant therefore is posted to the registered address of the shareholder entitled to the payment

registered address of the shareholder entitled to the payment of dividend.of dividend.

The dividend warrant is an order by the company to its banker to pay the amount The dividend warrant is an order by the company to its banker to pay the amount specified therein to the shareholder whose n

specified therein to the shareholder whose name is written therein. The warrant is crossedame is written therein. The warrant is crossed as payee accounts only and therefore, the banker makes the payment to the shareholder as payee accounts only and therefore, the banker makes the payment to the shareholder not in cash but by crediting it in his bank account.

not in cash but by crediting it in his bank account.

Further, the section proves also that any money transferred to the

Further, the section proves also that any money transferred to the unpaid dividendunpaid dividend account of any company which remains unpaid

account of any company which remains unpaid or unclaimed or unclaimed for a period of 7 yfor a period of 7 years fromears from the date of such transfer must be

the date of such transfer must be transferred by the company to fund set up btransferred by the company to fund set up by the centraly the central government under section 205 C.

government under section 205 C.

8.

8. Payment of Dividend out of Capital :Payment of Dividend out of Capital :

(a)

Dividends can only be deDividends can only be declared or paid out of (i) the cclared or paid out of (i) the current profits of theurrent profits of the

company, (ii) the past accumulated profits and (iii) moneys provided by the government company, (ii) the past accumulated profits and (iii) moneys provided by the government for the payment of dividends in pursuance of a guarantee given by that government. No for the payment of dividends in pursuance of a guarantee given by that government. No dividend can be p

dividend can be paid out of capital. (Sec. 205 aid out of capital. (Sec. 205 (i)). director who is responsible for (i)). director who is responsible for payment of dividend out of ca

payment of dividend out of capital shall be personally liable to take good pital shall be personally liable to take good such amount tosuch amount to the company.

the company.

(b)

(b) Companies are not entitled to pay anCompanies are not entitled to pay any dividend unless present or arrears of y dividend unless present or arrears of depreciation have been provided for out of the profits and an amount of 10 % or reports depreciation have been provided for out of the profits and an amount of 10 % or reports has been transferred to reserve. However, cen

has been transferred to reserve. However, central government may allow any company totral government may allow any company to declare or pay dividends out

declare or pay dividends out of profits before providing for any depreciation.of profits before providing for any depreciation.

(c)

(c) Capital Profits may also be utilised for the declarations of dividend provided (i)Capital Profits may also be utilised for the declarations of dividend provided (i) there is nothing in the Article prohibiting the

there is nothing in the Article prohibiting the distribution of dividend out of capitaldistribution of dividend out of capital profits; (ii) they have been reallied in cash: and

profits; (ii) they have been reallied in cash: and (iii) they ave been realised in cash (iii) they ave been realised in cash andand (iii) they remain as profits after

(iii) they remain as profits after revaluation of all assets revaluation of all assets and liabilities.and liabilities.

(d)

(d) Dividend cannot be paid out of accumulated profits unless current losses areDividend cannot be paid out of accumulated profits unless current losses are made good.

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9.

9. PaymenPayment of Inert of Inerest out est out of Capitaof Capital Undel Under Section r Section 208 :208 :

(a) For the purpose of raising money to defray the expenses of the construction of any (a) For the purpose of raising money to defray the expenses of the construction of any work or building, or the provision of

work or building, or the provision of any plant, which cannot be any plant, which cannot be made profitable for amade profitable for a lengthy period, the company may:

lengthy period, the company may:

(i) pay interest on so much of that share

(i) pay interest on so much of that share capital as is for the time being paid capital as is for the time being paid up, for theup, for the period and subject to certain

period and subject to certain conditions and restrictionsconditions and restrictions (ii) charge the sum so paid b

(ii) charge the sum so paid by way of interest, to capital as part of the y way of interest, to capital as part of the cost of constructioncost of construction of the work or building, or

of the work or building, or the provision of the plant.the provision of the plant. (b) No such payment shall be made

(b) No such payment shall be made unless it is authorised by the articles or by a specialunless it is authorised by the articles or by a special resolution.

resolution.

(c) No such payment, whether authorised

(c) No such payment, whether authorised by the articles or by special resolution, shall beby the articles or by special resolution, shall be made without the previous sanction of the

made without the previous sanction of the Central Government.Central Government. (d) Before sanctioning any such payment, the

(d) Before sanctioning any such payment, the Central Government may, at the expense Central Government may, at the expense of of the company, appoint a person to inquire into, and report to the Central Government on, the company, appoint a person to inquire into, and report to the Central Government on, the circumstances of the case; and

the circumstances of the case; and may, before making the appointment, require may, before making the appointment, require thethe company to give security for the payment of

company to give security for the payment of the costs of the inquiry.the costs of the inquiry. (e) The payment of interest shall be made

(e) The payment of interest shall be made only for such period as may be only for such period as may be determined bydetermined by the Central Government; and that period shall in no case extend beyond the close of the the Central Government; and that period shall in no case extend beyond the close of the half-year next after the half-year during which the work or building has been actually half-year next after the half-year during which the work or building has been actually completed or the plant provided.

completed or the plant provided.

(f) The rate of interest shall, in no case,

(f) The rate of interest shall, in no case, exceed four per cent exceed four per cent per annum or such other per annum or such other raterate as the Central Government may, by notification in

as the Central Government may, by notification in the Official Gazette, direct.the Official Gazette, direct. (g) The payment of the interest shall not o

(g) The payment of the interest shall not operate as a reduction of the perate as a reduction of the amount paid up onamount paid up on the shares in respect of which it is

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10.

10.Investor Education and Protection Fund Under Section 205 C :Investor Education and Protection Fund Under Section 205 C :

1 1 ..

(1) The Central Government shall establish a fund to be called the Investor Education (1) The Central Government shall establish a fund to be called the Investor Education

and Protection Fund (hereafter in this section referred to as the “Fund”). and Protection Fund (hereafter in this section referred to as the “Fund”). 2

2

.. (2) There shall be credited to the Fund the following amounts, namely:-(2) There shall be credited to the Fund the following amounts, namely:-(a)

(a) amoamountunts s in in the the unpaunpaid id divdivideidend nd accaccountounts s of of comcompanipanies;es; (b

(b ))

the application moneys received by companies for allotment of any the application moneys received by companies for allotment of any securities and due for refund;

securities and due for refund; (c

(c) ) mamatuturered d depdeposositits s wiwith th cocompmpananieies;s; (d

(d

)) matured debentures with companies;matured debentures with companies; (e)

(e) the the intintereerest st accraccrued ued on on the the amoamountunts s refreferrerred ed to to in in claclauseuses s (a) (a) to to (d)(d);; (f)

(f) gragrants nts and and donadonatiotions ns givgiven en to to the the FunFund d by by the the CenCentratral l GoveGovernmrnmentent, , StStateate Governments, companies or any other institutions for the purposes of the Governments, companies or any other institutions for the purposes of the Fund;and

Fund;and (g

(g ))

the interest or other income received out

the interest or other income received out of the investments made fromof the investments made from the Fund;

the Fund;

3 3 ..

(3) The Fund shall be utilized for promotion of investors’ awareness and protection of (3) The Fund shall be utilized for promotion of investors’ awareness and protection of

the interests of investors in accordance with such

the interests of investors in accordance with such rules as may be prescribed.rules as may be prescribed. 4

4 ..

(4) The Central Government shall, by notification in the Official Gazette, specify an (4) The Central Government shall, by notification in the Official Gazette, specify an

authority or committee, with such members as the Central Government may authority or committee, with such members as the Central Government may

appoint, to administer the Fund, and maintain separate accounts and other relevant appoint, to administer the Fund, and maintain separate accounts and other relevant records in relation to the Fund in such form as may be prescribed in consultation records in relation to the Fund in such form as may be prescribed in consultation with the Comptroller and Auditor-General of India.

with the Comptroller and Auditor-General of India. 5

5 ..

(5) It shall be competent for the authority or Committee appointed under sub-section (5) It shall be competent for the authority or Committee appointed under sub-section

(4) to spend moneys out of the

(4) to spend moneys out of the Fund for carrying out the objects for which theFund for carrying out the objects for which the Fund has been established.

(16)

CONCLUSION

Management and the board

Management and the board may believe that the money is best re-invested into the may believe that the money is best re-invested into the company:company: research and development, capital

research and development, capital investment, expansion, etc. Proponents of this view (and investment, expansion, etc. Proponents of this view (and thusthus critics of dividends per se) suggest that an eagerness

critics of dividends per se) suggest that an eagerness to return profits to shareholders mayto return profits to shareholders may indicate having run out of

indicate having run out of good ideas for the future of the good ideas for the future of the company. Some studies, however,company. Some studies, however, have demonstrated that companies that pay dividends have higher earnings growth, suggesting have demonstrated that companies that pay dividends have higher earnings growth, suggesting that dividend payments may be evidence

that dividend payments may be evidence of confidence in earnings growth and of confidence in earnings growth and sufficientsufficient profitability to fund future expansion. When dividends are

profitability to fund future expansion. When dividends are paid, individual shareholders inpaid, individual shareholders in many countries suffer from

many countries suffer from double taxationdouble taxation of those dividends: the company pays income of those dividends: the company pays income tax totax to the government when it earns any income, and then when the dividend is paid, the individual the government when it earns any income, and then when the dividend is paid, the individual shareholder pays income tax on the

shareholder pays income tax on the dividend payment; in many countries, the tax dividend payment; in many countries, the tax rate onrate on dividend income is lower than for other

dividend income is lower than for other forms of income to compensate for tax pforms of income to compensate for tax paid at theaid at the corporate level. Taxation of dividends

corporate level. Taxation of dividends is often used as justification for retaining earnings, or for is often used as justification for retaining earnings, or for performing a

performing a stock buyback stock buyback , in which the company b, in which the company buys back stock, thereby increasing theuys back stock, thereby increasing the value of the stock left outstanding. In

value of the stock left outstanding. In contrast, corporate shareholders often do not pay tax contrast, corporate shareholders often do not pay tax onon dividends because the tax regime is designed to tax corporate income (as opposed to individual dividends because the tax regime is designed to tax corporate income (as opposed to individual income) only once. The shareholder

income) only once. The shareholder will pay a tax on capital gains will pay a tax on capital gains (which is often taxed at a(which is often taxed at a lower rate than

lower rate than ordinary incomeordinary income) only when the shareholder chooses to sell the stock. If a holder ) only when the shareholder chooses to sell the stock. If a holder of the stock chooses to not participate in the buyback, the price of the holder's shares should of the stock chooses to not participate in the buyback, the price of the holder's shares should rise, but the tax on these

rise, but the tax on these gains is delayed until the actual sale of gains is delayed until the actual sale of the shares. Certain types of the shares. Certain types of specialized investment companies (such as a

specialized investment companies (such as a REITREIT in the U.S.) allow the shareholder to partiallyin the U.S.) allow the shareholder to partially or fully avoid double taxation of d

or fully avoid double taxation of dividends. Shareholders in companies which pay little or noividends. Shareholders in companies which pay little or no cash dividends can reap

cash dividends can reap the benefit of the company's profits when they sell their shareholding,the benefit of the company's profits when they sell their shareholding, or when a company is wound down and all assets

or when a company is wound down and all assets liquidatedliquidated and distributed amongstand distributed amongst shareholders. This, in effect, delegates the dividend

shareholders. This, in effect, delegates the dividend policy from the board to the individualpolicy from the board to the individual shareholder. Payment of a dividend can

shareholder. Payment of a dividend can increase the borrowing requirement, or increase the borrowing requirement, or leverageleverage, of a, of a company.

(17)

BIBLIOGRAPHY & WEBLIOGRAPHY

1.

1. Company Law by S.S.GULSHAN.Company Law by S.S.GULSHAN.

2.

2. Company Law by H.K.SAHARAY.Company Law by H.K.SAHARAY. 3.

3. CompanCompany Lay Law by w by Avtaar Avtaar SinghSingh.. 4.

4. CompanCompany y Law Law by by R.K.BAR.K.BANGIA.NGIA.

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1. lawandotherthings.blogspot.comlawandotherthings.blogspot.com..

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