Question ID : 40418

Dividend

A private Limited Co. has a paid up capital Rs. 6.50 lacs & accumulated surplus Rs. 11.50 as on 31.03.2018 During the FY 2018-19 company has suffered losses Rs. 3.50 lacs . The Company has declared and PAid Dividend Rs. 8.50 LAcs to shareholders and deposited 1.74 lacs as DDT (Dividend Distribution Tax) in FY 18-19 My querry is whether the company can paid the above dividend and if no what is remedy or consequences .

Answer ID : 80191

In this case the company violated the provisions of section 123 esp 2nd proviso to that section. It also violated the declaration and payment of dividend rules esp Rule 3(2), 3(3) and 3(4). The maximum amount that can be drawn from accumulated reserves is 10% of the total paid up capital and free reserves ie 10% of 18 lakhs. The said amount is not even sufficient to absorb the current year loss of Rs 3.5 lakhs.

Answer ID : 80193

There is no specific penalty for violation mentioned by you. There is a provision for fine u/s 450 of the Act.

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