Section [wiki slug=’127-punishment-for-failure-to-distribute-dividends’ /] of the Companies Act, 2013
This section provides for the punishment in case of failure to distribute dividend on time. Accordingly –
i. In case there is failure to pay or issue warrant in respect of any shareholder entitled to such declared dividend within 30 days from the date of declaration, every director of the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to 2 years.
ii. He shall also be liable for a fine which shall not be less than ₹1,000/- for every day during which such default continues.
iii. The company shall also be liable to pay simple interest at the rate of 18% p.a. during the period for which such default continues.
iv. However, the following exceptions are there under this section, which will not be deemed to be have been committed a contravention –
a. Where the dividend couldn’t be paid by reason of the operation of any law.
b. Where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with and the same has been communicated to him;
c. Where there is a dispute regarding the right to receive the dividend;
d. Where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder; or
e. Where, for any other reason, the failure to pay the dividend or to post the warrant within the period under this section was not due to any default on the part of the company.
Vide Notification no. 465(E) dated 5th June 2015, this section shall apply to the Nidhis company, subject to that where the dividend payable to a member is one hundred rupees or less, it shall be sufficient compliance of the provisions of the section, if the declaration of the dividend is announced in the local language in one local newspaper of wide circulation and announcement of the said declaration is also displayed on the notice board of the nidhis for at least three months.