Distribution of dividend in a pvt ltd company
V. Natarajan
(Querist) 29 March 2013
This query is : Resolved
A Pvt Ltd Company had distributed 7600% i.e. 76 times the face value (Rs 7600 as dividend against every paid up capital share of Rs 100). By this act the directors have emptied the coffers. This interim dividend by the directors has not been ratified by the general body of shareholders though 2 AGMs have been held consequently after this. The interim dividend was declared in October 2010, and the subsequent AGMs were held in August 2011 and August 2011 for the relevant years. Does this action of the directors attract contravention Rule 2 especially Rule 2(4) of the Companies (Transfer of Profits to Reserves) Rules, 1975 ?
The company is driven to liquidation because of this act and the fixed asset where the registered office of the company was located has been sold. This act of sale of registered office has not been intimated to the authorities nor has any alternate registered office address been communicated to any one including members. By this act has the company or its directors disregarded or flouted any rule of sections of companies law or any other law in vogue?
Amritesh Mishra
(Expert) 02 April 2013
If a company declares dividend more than 20% then, it has to transfer at least 10% of the profit to general reserve. dividend must be distributed in compliance with section 205 of the companies Act. This provision is for protecting the interest of other stakeholders. some relevant documents are required to be checked like loan agreement. sometimes loan agreement contains provision to the effect that they restrict distribution of dividend till the payment of loan. The financial statement of 31/03/2011 will also reveal the fact whether the dividend was distributed with Malafide intention.
