Question

Under Section 123 of the Companies Act, 2013, if a company has inadequate profits in the current financial year and intends to declare a dividend out of the accumulated profits (Free Reserves), which of the following conditions is incorrect as per the Companies (Declaration and Payment of Dividend) Rules, 2014?

Q: Answer-Under Section 123 of the Companies Act, 2013, if a company has inadequate profits in the current fin...

Under the Proviso to Section 1231, a company which has defaulted in the repayment of deposits under Section 73 or 74 is prohibited from declaring any dividend. There is no provision for Central Government approval to bypass this. All other options a, b, c, d are mandatory conditions under Rule 3 for declaring dividends from reserves.

A The rate of dividend shall not exceed the average of the rates at which dividend was declared by it in the three years immediately preceding that year.

B The total amount to be drawn from the accumulated profits shall not exceed one-tenth (10%) of the sum of its paid-up share capital and free reserves.

C The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which the dividend is declared.

D The balance of reserves after such withdrawal shall not fall below 15% of its paid-up share capital.

E The company must obtain prior approval from the Central Government if it has defaulted in the redemption of debentures.

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