Companies Rules – Declaration and Payment of Dividend

By / / Companies Act

Consolidated Master Notification

[First Notification No. GSR 241(E) dt. 31 Mar 2014 as amended by, GSR 397 (E) dt. 12 Jun 2014, GSR 121 (E) dt. 24 Feb 2015, GSR 441 (E) dt. 29 May 2015]

In exercise of the powers conferred under sub-section (1) of section 123 read with section 469 of the Companies Act, 2013 (18 of 2013) and in supersession of the Companies (Central Government’s) General Rules and Forms, 1956 and other Rules prescribed under the Companies Act, 1956 on matters covered under these rules, except as respects things done or omitted to be done before such suppression, the Central Government hereby makes the following rules, namely –

Rule 1 – Short Title and Commencement

  1. These rules may be called the Companies (Declaration and Payment of Dividend) Rules, 2014
  2. They shall come into force on the 1st day of April, 2014

Rule 2 – Definitions

  1. In these rules, unless the context otherwise requires –
    a) Act means the Companies Act, 2013
    b) Section means section of the Act
  2. Words and expressions used in these rules but not defined and defined in the Act or in the Companies (Specification of Definitions Details) Rules, 2014, shall have the same meanings respectively assigned to them in the Act or in the said Rules.

Rule 3 – Declaration of dividend out of reserves

In the event of inadequacy or absence of profits in any year, a company may declare dividend out of free reserves subject to the fulfillment of the following conditions, namely –

  1. The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the 3 years immediately preceding that year.
    Provided that this sub-rule shall not apply to a company, which has not declared any dividend in each of the 3 preceding financial year.
  2. The total amount to be drawn from such accumulated profits shall not exceed 1/10th of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement.
  3. The amount so drawn shall first be utilized to set off the losses incurred in the financial year in which dividend is declared before any dividend in respect of equity shares is declared.
  4. The balance of reserves after such withdrawal shall not fall below 15% of its paid up share capital as appearing in the latest audited financial statement.

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