Section 127 of the Companies Act, 2013, makes a sure point about the time-bound payment of dividend and hence reinforces responsibility in the context of corporate governance. It mandates that every company pays all declared dividends on a date not more than 30 days from the declaration date so that shareholders receive their rightful returns when due. A breach of this provision can attract severe penalties including fines, interest, and imprisonment of liable directors. Section 127 carves out specific exceptions, where the company has no choice but to pay late. Knowing these rules sustains a company's compliance and protects the interest of the shareholders by promoting transparency within the corporate structure.
Purpose of Section 127 of the Companies Act 2013
This section ensures that dividends are paid to shareholders in time and holds the directors liable in case they intentionally delay their payment. It balances the rights of shareholders with practical exceptions by recognizing that there might be some justifications for delayed payments.
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In-depth Analysis of Section 127 of the Companies Act 2013
Section 127 states the following requirements for each company:
When a company declares a dividend, it is legally obligated to pay or send the dividend warrant to the eligible shareholders within thirty days from the declaration date.
If the company fails to make this payment within the specified time, each director who is knowingly a part of this default will face penalties.
Penalties for Non-Compliance:
Directors’ Liability: Any director who knowingly participates in the default may face: Imprisonment of up to two year & Fine of at least one thousand rupees per day for every day the default continues.
Company’s Liability: The company must pay simple interest at the rate of 18% per annum on the unpaid dividend amount for the period during which the default persists.
Exceptions to Penalties:
The section provides certain exceptions, under which the directors and the company would not be penalized for non-payment or delay in the dividend distribution:
Legal Hindrance: If payment of the dividend is restricted due to any operation of law.
Shareholder’s Directions: If the shareholder has given specific directions regarding the payment of the dividend that the company cannot fulfill and has communicated this to the shareholder.
Dispute on Right to Dividend: If there is a dispute over who is entitled to the dividend.
Adjustment Against Company’s Dues: If the dividend amount has been lawfully adjusted against any debt the shareholder owes to the company.
Unintentional Delay: If the failure to pay the dividend or dispatch the warrant within the timeframe wasn’t due to any intentional default by the company.
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In Summary,
Section 127 of the Companies Act, 2013 states that after the declaration of a dividend, the company shall pay it to its shareholders within the period of 30 days from the date of declaration. This provision ensures timely rewards for shareholders, promoting trust and continued investment. However, if the company fails to pay within this period, directors involved in the default are subject to penalties, including imprisonment and daily fines.
However, the Act does offer certain exemptions and exceptions on which penalties may not be incurred. These include delay by reason of any restriction imposed by court; any directions given by the shareholders that could not be carried out; disputes as to any right to receive notice; legal adjustments against the share money payable to the shareholder; and other causes beyond the control of the corporation. Thus, there is always a degree of balance between accountability and practical exemptions so that transparency prevails while keeping in mind genuine cases of delay.
FAQs on Section 127 of the Companies Act, 2013
What does Section 127 of the Companies Act, 2013 provide for?
Section 127 stipulates that declared dividends be paid to shareholders within 30 days from the declaration. This provision thus ensures a timely and speedy return for the shareholder towards their investment. Non-compliance penalties include up to two years of imprisonment and daily fines for involved directors, while the company must pay 18% annual interest on unpaid dividends for the default period.
What happens if the dividend is not paid in time?
Even if a company fails to pay the dividend within the stipulated 30 days from the date of declaration, directors liable will be penalized with a fine and imprisonment, while the company will have to pay 18% interest on delayed payment. This is for responsibility and prompt payment.
Are the provisions of Section 127 exempted in some cases?
Yes, exemptions apply in case of payment delay by virtue of legal restrictions, specific instructions of shareholders, disputes over entitlement, set-off against dues, and other factors beyond control. This flexibility is to account for real delays.
How does Section 127 impact corporate governance?
Section 127 will certainly enhance trust in corporate governance. It ensures timely payment of dividend. It ensures companies are answerable to shareholders; thus, transparent and responsible management is encouraged.
What should shareholders do if they do not get the dividend within 30 days?
Shareholders may raise objections with the company or regulatory authorities since Section 127 requires a payment with interest in case the dividend distribution is delayed. This will act as a safeguard to enforce shareholder rights.
