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Pankaj Tyagi
| Updated: 07 Mar, 2022 | Category: Compliances

Unpaid Dividend Account: Norms under Companies Act, 2013

Unpaid Dividend Account

Section 124 of the Companies Act 2013 talks about the matters relating to the unpaid dividend account. This section provides for the channelization of the unclaimed or unpaid dividends to the special account created by the company in the designated bank. As per this section, this account is known as an unpaid dividend account. Section 124 further sets out the time requirement for pursuing such undertaking.

Time requirements for opening Unpaid Dividend Account

According to the said section, if the declared dividends remain unclaimed beyond the prescribed timeline, i.e. 30 days, the company must route such dividends in the special account within seven days from the expiration of the said timeline, i.e. 30 days. Therefore, Unpaid Dividend Account can be referred to as a voluntary account opened by the company for routing the unclaimed dividends.

Preparation of Statement relating to the transaction in Unpaid Dividend Account

As per Section 124 of the Companies Act 2013, the company shall, within 90 days of transferring a dividend amount under subsection (1) to the special account (Unpaid Dividend Account) is required to draft a statement enclosing the names and addresses of the concerned shareholders and post it on the company’s website, if any, and on other designated portal for this purpose, in such form and other details as may be cited.

Imposition of interest in case of non-transfer of amount

If any error is made in transferring the amount referred to in sub-section (1) to the Unpaid Dividend Account, it shall pay interest from the date of such default in proposition to the amount awaiting for transaction at the rate of 12 per cent/annum.

The interest building upon such amount shall benefit the company’s members in proportion to the sum remaining unpaid to them.

Facility for shareholders to claim unpaid dividend

Section 124 of the Companies Act 2013 also facilitates a facility that enables shareholders to claim unpaid dividend amounts routed under sub-section (1) to the Unpaid Dividend Account.

Transfer of unclaimed dividend to funds set up under subsection (1) of section 125

Any dividend amount routed to the Unpaid Dividend Account which remains unclaimed or unpaid for seven years from the date of such transfer shall be channelized by the entity along with interest accrued, if any, thereon to the fund set up under subsection (1) of section 125.

The company shall send a statement via a standard form enclosing the detail of such transfer to the authority that managed the said fund,. The said authority shall grant a receipt as proof of such transfer to the company.

Transfer of unclaimed shares to the Investor Education and Protection Fund

All shares relating to which dividend has not been claimed or paid for seven continuous years or more shall be routed to Investor Education and Protection Fund. The said transaction shall be accompanied by a statement enclosing such particulars as may be prescribed:

Here are some worth noting points to remember in this context

  • The claimant of such shares transferred has the right to claim the share from the said fund pursuant to such procedure and on submission of such documentation as requested.
  • No dividend shall be transferred to Investor Education and Protection Fund* if it is claimed or paid at any instance during the timeline above, i.e. seven consecutive years.

Investor Education and Protection Fund*

The Central Government launched the Investor Education and Protection Fund to safeguard the interest of investors and advocate awareness. It is set up u/s 125 of the Companies Act, 2013. The unclaimed or unpaid sums belonging to the concerned shareholders are polled and transferred to the same.

The Investor Education and Protection Fund are used for several purposes as described under the Act.

Penalties for not complying with Section 124 of Companies Act 2013

If a company fails to ensure adherence to any of the conditions of this section, the company shall be subjected to a penalty amounting to Rs 5 00,000. Keep in mind that this fine amount can be extended to twenty-five lakh rupees depending on a case-wise basis.

There is a provision for individual-based penalty under which every defaulting officer shall be liable to address the penalty amounting to Rs 1 00,000- which further can be extended to Rs 5 00,000.

Conclusion

Section 124 of the Companies Act 2013[1] provides grounds for the transparent management of unclaimed or unpaid dividends held by the company. Further, it seeks to protect unclaimed dividends from mis-utilization and improper transfer. It protects the interest of shareholders and companies against any dispute relating to fund management and dividend distribution. The set up of Unpaid Dividend Account under this Section acts as a safe fund reservoir for the company intending to ensure apt management of unclaimed dividends.

Read our Article:Register of Members under the Companies Act, 2013

Pankaj Tyagi

Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.

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