Question
Consider the following statements regarding dividend payment under Section 123 of the Companies Act, 2013: Statement 1: Dividend can be paid from accumulated profits made in previous financial years. Statement 2: A company that has incurred losses in the current or previous year cannot declare dividend. Statement 3: Dividend must be paid within 30 days of declaration, and any dividend not claimed within 7 years shall be transferred to the IEPF. Statement 4: The Board of Directors has absolute discretion to declare dividend without any statutory constraints. Which statements are correct?
Solution
Section 123 prescribes dividend payment conditions. Statement 1 is correct—dividends can be paid from free reserves, surpluses, or accumulated profits. Statement 2 is correct—no dividend is permitted if the company has incurred losses. Statement 3 is correct—payment deadline is 30 days, and unclaimed dividends transfer to IEPF after 7 years. Statement 4 is incorrect because the Board must comply with statutory constraints prescribed in Section 123; discretion is not absolute. Statements 1, 2, and 3 are correct.
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