Chapter 8: Declaration and Payment of Dividend - Test 2: answer key

Question 1 · 2 marks · Chapter 8: Declaration and Payment of Dividend · hard

Scenario. Nirvaan Consumer Products Ltd is an unlisted public company with paid-up equity share capital of Rs 900 lakh. At its Board meeting held on 12 August 2026, the Board declared an interim dividend of 18% for FY 2026-27. The company has a surplus balance in its profit and loss account of Rs 250 lakh. However, it incurred a loss of Rs 35 lakh for the current financial year up to the quarter ended 30 June 2026. The dividend rates declared by the company in the immediately preceding three financial years were 12%, 15% and 18%. The Board relied on the available surplus in the profit and loss account and contended that the loss for the quarter should not affect the interim dividend rate. The company deposited the total interim dividend amount in a separate scheduled bank account on 14 August 2026. Some shareholders did not encash their dividend warrants even after 30 days from the date of declaration. The company is yet to transfer those unpaid amounts to the Unpaid Dividend Account. The company secretary has sought legal advice on the maximum permissible interim rate, the validity of using the profit and loss surplus, the deadline for depositing the dividend amount, and the deadline for transferring unpaid dividend to the Unpaid Dividend Account.

What is the maximum rate at which Nirvaan Consumer Products Ltd could have declared the interim dividend on 12 August 2026, considering the loss for the quarter ended 30 June 2026?

1. 18%, because the company had sufficient surplus in the profit and loss account
2. 15%, being the average of the rates declared in the immediately preceding three financial years (correct answer)
3. 12%, being the lowest rate declared in the immediately preceding three financial years
4. No interim dividend could be declared because the company incurred a loss in the current financial year

Answer: B — 15%, being the average of the rates declared in the immediately preceding three financial years

Explanation. Where a company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, the interim dividend cannot be declared at a rate higher than the average of dividends declared during the immediately preceding three financial years. The average of 12%, 15% and 18% is 15%. Hence 18% is invalid. Availability of surplus does not override this rate restriction.

Where it goes wrong. Students may focus only on availability of profit and loss surplus and ignore the three-year average cap for interim dividend when there is a current quarter loss.

Authority. Proviso to Section 123(3) of the Companies Act, 2013

Question 2 · 2 marks · Chapter 8: Declaration and Payment of Dividend · medium

Can Nirvaan Consumer Products Ltd declare interim dividend out of the surplus balance in its profit and loss account even though it incurred a loss for the current year up to the preceding quarter?

1. Yes, surplus in the profit and loss account is a permissible source for interim dividend, subject to the rate restriction (correct answer)
2. No, interim dividend can be declared only out of profits of the financial year in which it is declared
3. No, interim dividend can be declared only out of free reserves created by a special resolution
4. Yes, but only after obtaining prior approval of the Registrar of Companies

Answer: A — Yes, surplus in the profit and loss account is a permissible source for interim dividend, subject to the rate restriction

Explanation. Section 123(3) permits interim dividend out of surplus in the profit and loss account, or profits of the financial year in which such dividend is sought to be declared, or profits generated up to the quarter preceding the date of declaration. Therefore, the surplus balance is a permissible source. However, because of the current quarter loss, the rate cannot exceed the average of the preceding three years.

Where it goes wrong. Students may think interim dividend can be paid only from current year profits and overlook the express permission to use profit and loss account surplus.

Authority. Section 123(3) of the Companies Act, 2013

Question 3 · 2 marks · Chapter 8: Declaration and Payment of Dividend · medium

The interim dividend was declared on 12 August 2026. By what date should the company have deposited the dividend amount in a separate scheduled bank account under Section 123(4)?

1. By 19 August 2026
2. By 11 September 2026
3. By 17 August 2026 (correct answer)
4. By 22 August 2026

Answer: C — By 17 August 2026

Explanation. Section 123(4) requires the amount of dividend, including interim dividend, to be deposited in a separate account maintained with a scheduled bank within five days from the date of declaration. Counting five days from 12 August 2026, the deposit was required by 17 August 2026. The company deposited it on 14 August 2026, which was within time.

Where it goes wrong. Students may confuse the 5-day deposit rule with the 30-day payment period or the 7-day UDA transfer period.

Authority. Section 123(4) of the Companies Act, 2013

Question 4 · 2 marks · Chapter 8: Declaration and Payment of Dividend · hard

If the unpaid interim dividend remained unpaid after 30 days from 12 August 2026, by what date should it have been transferred to the Unpaid Dividend Account?

1. By 11 September 2026
2. By 25 September 2026
3. By 17 August 2026
4. By 18 September 2026 (correct answer)

Answer: D — By 18 September 2026

Explanation. Where dividend remains unpaid or unclaimed within 30 days from the date of declaration, the company must transfer the unpaid amount to the Unpaid Dividend Account within 7 days from the expiry of that 30-day period. The 30-day period from 12 August 2026 expires on 11 September 2026. Seven days thereafter gives 18 September 2026 as the deadline.

Where it goes wrong. Students may use 7 days from the declaration date instead of 7 days from the expiry of the 30-day payment period.

Authority. Section 124(1) of the Companies Act, 2013

Question 5 · 2 marks · Chapter 8: Declaration and Payment of Dividend · hard

Scenario. Sarvottam Engineering Ltd held its Annual General Meeting on 15 September 2026 and declared a final dividend of 10% on its equity shares. The total dividend declared was Rs 40 lakh. The company deposited the entire dividend amount in a separate scheduled bank account on 18 September 2026. Dividend warrants were posted to shareholders, but dividend amounting to Rs 8 lakh remained unpaid or unclaimed even after 30 days from the date of declaration. The company transferred this unpaid amount to the Unpaid Dividend Account on 25 October 2026. Meanwhile, on 1 December 2026, the Board declared an interim dividend of 12% for FY 2026-27. The company had no loss up to the quarter ended 30 September 2026. It had current year profits of Rs 50 lakh up to that quarter and a surplus balance in the profit and loss account of Rs 120 lakh. The company has not yet prepared the statement containing the names, last known addresses and unpaid dividend amounts of the persons entitled to receive payment from the Unpaid Dividend Account. The auditors have asked whether the deposit timeline, the UDA transfer timeline and the consequences of delayed transfer were correctly complied with.

Sarvottam Engineering Ltd declared final dividend on 15 September 2026 and deposited the dividend amount in a separate scheduled bank account on 18 September 2026. Is the deposit compliant with Section 123(4)?

1. Yes, because the deposit was made within five days from the date of declaration (correct answer)
2. No, because the deposit should have been made before the AGM
3. No, because the deposit should have been made within 7 days from the date of declaration
4. Yes, because the deposit was made within 30 days from the date of declaration

Answer: A — Yes, because the deposit was made within five days from the date of declaration

Explanation. The amount of dividend, including interim dividend, must be deposited in a separate scheduled bank account within five days from the date of declaration. The dividend was declared on 15 September 2026 and deposited on 18 September 2026, which is within five days. Therefore, the deposit is compliant.

Where it goes wrong. Students may apply the 7-day UDA transfer rule or the 30-day payment rule to the separate bank account deposit requirement.

Authority. Section 123(4) of the Companies Act, 2013

Question 6 · 2 marks · Chapter 8: Declaration and Payment of Dividend · hard

The final dividend was declared on 15 September 2026. By what date should the unpaid amount of Rs 8 lakh have been transferred to the Unpaid Dividend Account?

1. By 15 October 2026
2. By 20 September 2026
3. By 22 October 2026 (correct answer)
4. By 25 October 2026

Answer: C — By 22 October 2026

Explanation. The company must transfer unpaid or unclaimed dividend to the Unpaid Dividend Account within 7 days from the expiry of 30 days from the date of declaration. Thirty days from 15 September 2026 expires on 15 October 2026. Seven days thereafter makes 22 October 2026 the due date. Transfer on 25 October 2026 was delayed.

Where it goes wrong. Students may count 7 days from the declaration date or use the date of actual deposit in the separate bank account.

Authority. Section 124(1) of the Companies Act, 2013

Question 7 · 2 marks · Chapter 8: Declaration and Payment of Dividend · medium

The company transferred Rs 8 lakh to the Unpaid Dividend Account on 25 October 2026 instead of 22 October 2026. What is the legal consequence of this delay?

1. The company must pay a penalty of Rs 1 lakh only, with no interest liability
2. The company must pay simple interest at 12% per annum from the date of default on the amount not transferred, for the benefit of the members entitled (correct answer)
3. The company must pay interest at 18% per annum from the date of declaration
4. No consequence arises because the amount was transferred before the end of the financial year

Answer: B — The company must pay simple interest at 12% per annum from the date of default on the amount not transferred, for the benefit of the members entitled

Explanation. If a company defaults in transferring the unpaid dividend amount or any part thereof to the Unpaid Dividend Account, it must pay interest at 12% per annum from the date of default on the amount not transferred. The interest accrues for the benefit of the members in proportion to the amount remaining unpaid to them.

Where it goes wrong. Students may apply the 18% interest rate applicable to failure to pay dividend within 30 days under Section 127 instead of the 12% rate for delayed UDA transfer.

Authority. Section 124(3) of the Companies Act, 2013

Question 8 · 2 marks · Chapter 8: Declaration and Payment of Dividend · hard

After transferring Rs 8 lakh to the Unpaid Dividend Account on 25 October 2026, within what time must the company prepare the statement containing names, last known addresses and unpaid dividend amounts and place it on its website?

1. Within 30 days of the date of declaration
2. Within 7 days of the transfer to the Unpaid Dividend Account
3. Within 60 days of the end of the financial year
4. Within 90 days of transferring the amount to the Unpaid Dividend Account (correct answer)

Answer: D — Within 90 days of transferring the amount to the Unpaid Dividend Account

Explanation. Section 124(2) requires the company, within 90 days of transferring any amount to the Unpaid Dividend Account, to prepare a statement containing the names, last known addresses and amount of unpaid dividend payable to each person and place it on its website and on any other website approved by the Central Government.

Where it goes wrong. Students may confuse the 90-day statement timeline with the 30-day payment period or the 7-day UDA transfer period.

Authority. Section 124(2) of the Companies Act, 2013

Question 9 · 2 marks · Chapter 8: Declaration and Payment of Dividend · hard

Scenario. Dhanvarsha Ltd declared an interim dividend of Rs 73 lakh on 1 April 2026. The company deposited the dividend amount in a separate scheduled bank account on 4 April 2026. However, the entire declared dividend of Rs 73 lakh remained unpaid or unclaimed even after 30 days from the date of declaration. The 30-day period expired on 1 May 2026, and the amount should have been transferred to the Unpaid Dividend Account within 7 days from such expiry. The company actually transferred the amount to the Unpaid Dividend Account on 7 July 2026, resulting in a delay of 60 days from the due date. One shareholder, Mr Dev, whose dividend remained unpaid, wants to claim the amount. Another shareholder has asked whether the interest recovered from the company for delayed transfer belongs to the company or to the members entitled to the unpaid dividend. The company has also not placed the prescribed statement of unpaid dividend on its website. The Board is reviewing the legal position regarding the interest liability, the rights of claimants and the nature of the Unpaid Dividend Account.

Dhanvarsha Ltd transferred Rs 73 lakh to the Unpaid Dividend Account 60 days after the due date. What is the amount of interest payable at 12% per annum for the delayed period?

1. Rs 73,000
2. Rs 2,19,000
3. Rs 1,44,000 (correct answer)
4. Rs 1,46,000

Answer: C — Rs 1,44,000

Explanation. Interest is simple interest at 12% per annum on the amount not transferred from the date of default. On Rs 73,00,000 for 60 days, interest is Rs 73,00,000 × 12% × 60/365 = Rs 1,44,000. This interest is for the benefit of the members entitled to the unpaid dividend.

Where it goes wrong. Students may compute interest for 30 days or use the 18% penalty rate, or may treat interest as payable to the company.

Authority. Section 124(3) of the Companies Act, 2013

Question 10 · 2 marks · Chapter 8: Declaration and Payment of Dividend · medium

The interest recovered from Dhanvarsha Ltd for delayed transfer to the Unpaid Dividend Account belongs to:

1. The company, because it paid the interest from its own funds
2. The Central Government, because the default is against a statutory account
3. The scheduled bank where the Unpaid Dividend Account is maintained
4. The members entitled to the unpaid dividend, in proportion to the amounts remaining unpaid to them (correct answer)

Answer: D — The members entitled to the unpaid dividend, in proportion to the amounts remaining unpaid to them

Explanation. Section 124(3) expressly provides that the interest accruing on the amount not transferred to the Unpaid Dividend Account shall ensure to the benefit of the members of the company in proportion to the amount remaining unpaid to them. It does not belong to the company or the bank.

Where it goes wrong. Students may assume interest on default is a penalty retained by the company or Government.

Authority. Section 124(3) of the Companies Act, 2013

Question 11 · 2 marks · Chapter 8: Declaration and Payment of Dividend · hard

Mr Dev, whose dividend remained unpaid and was transferred to the Unpaid Dividend Account, wants to claim the amount. To whom should he apply for payment?

1. To the company concerned, which may pay the money so claimed (correct answer)
2. Only to the Registrar of Companies
3. Only to the Central Government
4. Only to the scheduled bank maintaining the Unpaid Dividend Account

Answer: A — To the company concerned, which may pay the money so claimed

Explanation. Any person claiming to be entitled to any money transferred to the Unpaid Dividend Account may apply to the company concerned for payment of the money so claimed. The company is the proper authority at this stage, before the amount is transferred to the Investor Education and Protection Fund.

Where it goes wrong. Students may jump to the IEPF Authority or the bank, but Section 124(4) provides that the claimant applies to the company for money lying in the UDA.

Authority. Section 124(4) of the Companies Act, 2013

Question 12 · 2 marks · Chapter 8: Declaration and Payment of Dividend · medium

The Unpaid Dividend Account under Section 124 must be opened by the company in:

1. The Reserve Bank of India
2. Any scheduled bank (correct answer)
3. A post office savings account
4. A non-scheduled cooperative bank only

Answer: B — Any scheduled bank

Explanation. Section 124(1) requires the company to transfer unpaid or unclaimed dividend to a special account called the Unpaid Dividend Account, to be opened by the company in any scheduled bank. It is not required to be opened with the RBI or a non-scheduled bank.

Where it goes wrong. Students may choose RBI because it regulates banking, but the statutory requirement is a scheduled bank.

Authority. Section 124(1) of the Companies Act, 2013

Question 13 · 2 marks · Chapter 8: Declaration and Payment of Dividend · hard

Scenario. Zenith Agro Tech Ltd closed its financial year on 31 March 2026 and its AGM is scheduled for 28 September 2026. The Board wants to declare an interim dividend on 10 August 2026. Is the Board competent to do so?

Zenith Agro Tech Ltd closed its financial year on 31 March 2026 and its AGM is scheduled for 28 September 2026. The Board wants to declare an interim dividend on 10 August 2026. Is the Board competent to do so?

1. No, interim dividend can be declared only after the AGM
2. No, interim dividend can be declared only by shareholders in general meeting
3. Yes, but only with prior approval of the Registrar
4. Yes, the Board may declare interim dividend at any time during the period from closure of the financial year till the AGM (correct answer)

Answer: D — Yes, the Board may declare interim dividend at any time during the period from closure of the financial year till the AGM

Explanation. Section 123(3) permits the Board of Directors to declare interim dividend at any time during the period from closure of the financial year till the holding of the annual general meeting, in addition to during any financial year. Therefore, the Board can declare it on 10 August 2026 before the AGM.

Where it goes wrong. Students may think interim dividend is only for a running financial year and not for the period between year-end and AGM.

Authority. Section 123(3) of the Companies Act, 2013

Question 14 · 2 marks · Chapter 8: Declaration and Payment of Dividend · hard

Scenario. Kaveri Foods Ltd incurred a loss of Rs 20 lakh for the current year up to the quarter ended 30 June 2026. It declared interim dividend on 20 July 2026. The dividend rates in the immediately preceding three financial years were 9%, 12% and 15%. What is the maximum interim dividend rate permitted?

Kaveri Foods Ltd incurred a loss of Rs 20 lakh for the current year up to the quarter ended 30 June 2026. It declared interim dividend on 20 July 2026. The dividend rates in the immediately preceding three financial years were 9%, 12% and 15%. What is the maximum interim dividend rate permitted?

1. 12%, being the average of the preceding three years (correct answer)
2. 15%, being the highest rate in the preceding three years
3. 9%, being the lowest rate in the preceding three years
4. No interim dividend is permitted because the company incurred a loss

Answer: A — 12%, being the average of the preceding three years

Explanation. Where the company has incurred loss up to the end of the quarter immediately preceding the date of declaration of interim dividend, the rate cannot exceed the average of the rates declared in the immediately preceding three financial years. The average of 9%, 12% and 15% is 12%. A current loss does not absolutely bar interim dividend; it only imposes the average-rate ceiling.

Where it goes wrong. Students may impose a complete ban on interim dividend due to current loss or may use the highest previous rate.

Authority. Proviso to Section 123(3) of the Companies Act, 2013

Question 15 · 2 marks · Chapter 8: Declaration and Payment of Dividend · medium

Scenario. A company declared interim dividend on 5 November 2026. The finance manager deposited the dividend amount in the company's ordinary current account with a scheduled bank on 9 November 2026. Is the compliance valid?

A company declared interim dividend on 5 November 2026. The finance manager deposited the dividend amount in the company's ordinary current account with a scheduled bank on 9 November 2026. Is the compliance valid?

1. Yes, because deposit was made within five days in a scheduled bank
2. No, because deposit must be made within 7 days
3. No, because the amount must be deposited in a separate account maintained with a scheduled bank, not the ordinary current account (correct answer)
4. Yes, because the account is with a scheduled bank and the company is free to choose any account

Answer: C — No, because the amount must be deposited in a separate account maintained with a scheduled bank, not the ordinary current account

Explanation. Section 123(4) requires the dividend amount, including interim dividend, to be deposited in a separate account maintained with a scheduled bank within five days from declaration. Depositing in the ordinary current account does not satisfy the requirement of a separate account, even though the bank is scheduled and the timing is within five days.

Where it goes wrong. Students may focus only on the bank being scheduled and the five-day timeline, ignoring that the account must be separate.

Authority. Section 123(4) of the Companies Act, 2013

Question 16 · 2 marks · Chapter 8: Declaration and Payment of Dividend · hard

Scenario. A final dividend was declared on 1 June 2026. Some dividend remained unpaid after 30 days. The company transferred the unpaid amount to the Unpaid Dividend Account on 10 July 2026. What was the due date for transfer?

A final dividend was declared on 1 June 2026. Some dividend remained unpaid after 30 days. The company transferred the unpaid amount to the Unpaid Dividend Account on 10 July 2026. What was the due date for transfer?

1. 6 June 2026
2. 8 July 2026 (correct answer)
3. 1 July 2026
4. 10 July 2026

Answer: B — 8 July 2026

Explanation. Thirty days from 1 June 2026 expires on 1 July 2026. The company must transfer the unpaid amount to the Unpaid Dividend Account within 7 days from the expiry of that 30-day period, i.e. by 8 July 2026. Transfer on 10 July 2026 was delayed by two days.

Where it goes wrong. Students may count 7 days from the declaration date or may use 30 days from the end of the month.

Authority. Section 124(1) of the Companies Act, 2013

Question 17 · 2 marks · Chapter 8: Declaration and Payment of Dividend · medium

Scenario. A company failed to transfer Rs 25 lakh of unpaid dividend to the Unpaid Dividend Account within the prescribed time. The amount was transferred 45 days after the due date. What rate of interest is payable on the amount not transferred?

A company failed to transfer Rs 25 lakh of unpaid dividend to the Unpaid Dividend Account within the prescribed time. The amount was transferred 45 days after the due date. What rate of interest is payable on the amount not transferred?

1. 18% per annum under Section 127
2. 10% per annum as prescribed by the Reserve Bank of India
3. No interest is payable if the amount is ultimately transferred
4. 12% per annum from the date of default under Section 124(3) (correct answer)

Answer: D — 12% per annum from the date of default under Section 124(3)

Explanation. Section 124(3) specifically provides for interest at 12% per annum from the date of default where a company fails to transfer the unpaid dividend amount or any part thereof to the Unpaid Dividend Account. The 18% rate under Section 127 applies to failure to pay declared dividend within 30 days, not to delayed UDA transfer.

Where it goes wrong. Students may apply the Section 127 penalty interest rate of 18% to a UDA transfer default.

Authority. Section 124(3) of the Companies Act, 2013

Question 18 · 2 marks · Chapter 8: Declaration and Payment of Dividend · hard

Scenario. A company transferred Rs 12 lakh to the Unpaid Dividend Account on 15 August 2026. By what date must it prepare the statement of unpaid dividend containing names, last known addresses and amounts and place it on its website?

A company transferred Rs 12 lakh to the Unpaid Dividend Account on 15 August 2026. By what date must it prepare the statement of unpaid dividend containing names, last known addresses and amounts and place it on its website?

1. By 13 November 2026 (correct answer)
2. By 22 August 2026
3. By 14 September 2026
4. By 31 March 2027

Answer: A — By 13 November 2026

Explanation. Section 124(2) requires the company, within 90 days of transferring any amount to the Unpaid Dividend Account, to prepare the prescribed statement and place it on its website and on any other website approved by the Central Government. Ninety days from 15 August 2026 falls on 13 November 2026.

Where it goes wrong. Students may apply the 30-day or 7-day timeline instead of the 90-day statement timeline.

Authority. Section 124(2) of the Companies Act, 2013

Question 19 · 2 marks · Chapter 8: Declaration and Payment of Dividend · medium

Scenario. A company has no profits in the current financial year up to the date of declaration of interim dividend, but it has a credit balance in its profit and loss account. Can the Board declare interim dividend?

A company has no profits in the current financial year up to the date of declaration of interim dividend, but it has a credit balance in its profit and loss account. Can the Board declare interim dividend?

1. No, interim dividend can be declared only out of current year profits
2. No, a credit balance in the profit and loss account can be used only for final dividend
3. Yes, surplus in the profit and loss account is a permissible source for interim dividend (correct answer)
4. Yes, but only after transferring the entire surplus to free reserves

Answer: C — Yes, surplus in the profit and loss account is a permissible source for interim dividend

Explanation. Section 123(3) expressly permits interim dividend out of the surplus in the profit and loss account, or out of profits of the financial year in which such dividend is sought to be declared, or profits generated up to the quarter preceding the date of declaration. Therefore, absence of current year profits does not bar interim dividend if profit and loss account surplus is available.

Where it goes wrong. Students may wrongly restrict interim dividend to current year profits only.

Authority. Section 123(3) of the Companies Act, 2013

Question 20 · 2 marks · Chapter 8: Declaration and Payment of Dividend · hard

Scenario. A shareholder's dividend remained unpaid and was transferred to the Unpaid Dividend Account. Before the amount is transferred to the Investor Education and Protection Fund, the shareholder wants to claim it. Which statement is correct?

A shareholder's dividend remained unpaid and was transferred to the Unpaid Dividend Account. Before the amount is transferred to the Investor Education and Protection Fund, the shareholder wants to claim it. Which statement is correct?

1. The shareholder must wait until the amount is transferred to the IEPF and then apply to the IEPF Authority
2. The shareholder may apply to the company concerned for payment of the money claimed from the Unpaid Dividend Account (correct answer)
3. The shareholder can claim only by filing a suit against the scheduled bank
4. The shareholder has no right to claim once the amount is transferred to the Unpaid Dividend Account

Answer: B — The shareholder may apply to the company concerned for payment of the money claimed from the Unpaid Dividend Account

Explanation. Section 124(4) provides that any person claiming to be entitled to any money transferred to the Unpaid Dividend Account may apply to the company concerned for payment of the money so claimed. The right to claim from the IEPF arises only after the amount remains unpaid or unclaimed for seven years from the date of transfer to the UDA.

Where it goes wrong. Students may think the UDA amount is beyond the claimant once transferred, or may confuse the company-stage claim with the later IEPF refund procedure.

Authority. Section 124(4) of the Companies Act, 2013