Company law

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Payal Bafna (Querist)
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04 August 2015 CAN A LOSS MAKING COMPANY DECLARE INTERIM DIVIDEND? PLEASE ANSWER WITH PROPER EXPLANATION.

THANKS IN ADVANCE

CS Divesh Goyal

CS Divesh Goyal (Expert)
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07 August 2015 Declaration of dividend out of reserves.- In the event of inadequacy or absence of profits in any year, a company
may declare dividend out of free reserves subject to the fulfillment of the following conditions, namely:—
(1) The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the three
years immediately preceding that year:
Provided that this sub-rule shall not apply to a company, which has not declared any dividend in each of the three preceding
financial year.
(2) The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of its paid-up
share capital and free reserves as appearing in the latest audited financial statement.
(3) The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividend is
declared before any dividend in respect of equity shares is declared.
(4) The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share capital as
appearing in the latest audited financial statement.
(5) No company shall declare dividend unless carried over previous losses and depreciation not provided in previous year
are set off against profit of the company of the current year the loss or depreciation, whichever is less, in previous years is set
off against the profit of the company for the year for which dividend is declared or paid.