Write notes on the following: (ii) Declaration of dividend

Chapter VIII of the Companies Act, 2013 deals with declaration and payment of dividend. Section 123 provides for declaration of dividend. A company shall declare dividend and pay it, only out of profits of the company for the financial year arrived at after providing for depreciation or out of undistributed profits of any previous financial year or out of both. In case, any guarantee given by any Government (Central or State), the company may declare dividend out of money provided by that government for payment of dividend after providing for depreciation in accordance to Schedule II. Before declaration of dividend, a company may transfer a portion from the profit to the reserves of the company. The company is free to decide the percentage for such transfer to the reserve. There is no compulsion to transfer any amounts to reserves though it is a prudent practice. Where a company does not have adequate profit or any profit in a financial year or any accumulated profit to distribute as dividend, it may declare dividend out of reserves in accordance with the rules made by the government. The company may pay dividend only from free reserves, not from any other reserves. Interim dividend can be declared by the Board of directors subject to certain condition of sub-section 3 of section 123. Amount of dividend declared shall be deposited in a scheduled Bank within 5 days from the date of declaration. Dividend is to be paid only in cash or by Cheque of ECS to the registered shareholder or his order / Banker.