Chapter 8: Declaration and Payment of Dividend - Test 3: answer key

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

Scenario. Meghdoot Chemicals Ltd, an unlisted public company, declared dividends on its equity shares for eight consecutive financial years from 2017-18 to 2024-25. The dividend for 2017-18 was declared on 20 September 2017, and the unpaid amount relating to Mr Arvind, a registered shareholder, was transferred to the Unpaid Dividend Account on 5 November 2017. Mr Arvind did not claim any dividend for 2017-18 through 2024-25. Another shareholder, Ms Bela, also did not claim dividends for 2017-18 to 2022-23, but she claimed and received the dividend for 2023-24. In October 2025, the company transferred the underlying shares of both Mr Arvind and Ms Bela to the Investor Education and Protection Fund along with the prescribed statement. The company also transferred the unpaid dividend amounts lying in the Unpaid Dividend Account for more than seven years to the IEPF. Mr Arvind now claims that the company should have paid him from the Unpaid Dividend Account before transferring the amount to the IEPF. Ms Bela claims that her shares could not have been transferred because she claimed dividend for 2023-24. The company secretary is examining whether shares can be transferred where a dividend was paid or claimed for one year within the seven-year period, and whether a claimant can recover shares from the IEPF.

Was the transfer of Mr Arvind's shares to the IEPF in October 2025 valid?

1. Valid only if the company had sent a separate notice to Mr Arvind before transfer
2. Invalid because shares can be transferred to the IEPF only after ten consecutive years
3. Valid, because dividend on those shares remained unpaid or unclaimed for seven consecutive years or more (correct answer)
4. Invalid because Mr Arvind continued to be the registered shareholder

Answer: C — Valid, because dividend on those shares remained unpaid or unclaimed for seven consecutive years or more

Explanation. Section 124(6) requires all shares in respect of which dividend has not been paid or claimed for seven consecutive years or more to be transferred by the company to the IEPF along with the prescribed statement. Mr Arvind did not claim dividend for 2017-18 through 2024-25, which is more than seven consecutive years. Therefore, the transfer of his shares was valid. Being a registered shareholder does not prevent transfer under this provision.

Where it goes wrong. Students may think registered shareholding is permanent or that a separate notice is a statutory precondition.

Authority. Section 124(6) of the Companies Act, 2013

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

Was the transfer of Ms Bela's shares to the IEPF valid?

1. Valid, because she had not claimed dividends for six years
2. Invalid, because dividend was paid or claimed for 2023-24, so the shares were not in respect of seven consecutive years of non-payment (correct answer)
3. Valid, because the company transferred all unclaimed shares uniformly
4. Invalid, because shares can be transferred only with the shareholder's consent

Answer: B — Invalid, because dividend was paid or claimed for 2023-24, so the shares were not in respect of seven consecutive years of non-payment

Explanation. The Explanation to Section 124(6) clarifies that if any dividend is paid or claimed for any year during the seven consecutive years, the share shall not be transferred to the IEPF. Ms Bela claimed dividend for 2023-24, which falls within the period. Hence, her shares did not satisfy the requirement of seven consecutive years of non-payment or non-claim, and the transfer was invalid.

Where it goes wrong. Students may count only the number of years of default and ignore the break caused by a claim in one year.

Authority. Explanation to Section 124(6) of the Companies Act, 2013

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

The company transferred unpaid dividend amounts lying in the Unpaid Dividend Account for more than seven years to the IEPF. Is this action valid?

1. Valid, because money in the Unpaid Dividend Account remaining unpaid or unclaimed for seven years from the date of transfer to that account must be transferred to the IEPF with interest (correct answer)
2. Invalid, because unpaid dividend must remain in the Unpaid Dividend Account indefinitely
3. Valid only after twelve years from the date of declaration
4. Invalid unless every shareholder gives consent

Answer: A — Valid, because money in the Unpaid Dividend Account remaining unpaid or unclaimed for seven years from the date of transfer to that account must be transferred to the IEPF with interest

Explanation. Section 124(5) requires any money transferred to the Unpaid Dividend Account that remains unpaid or unclaimed for seven years from the date of such transfer to be transferred to the IEPF along with interest accrued, if any. The company must also send the prescribed statement to the IEPF Authority. Consent of shareholders is not required.

Where it goes wrong. Students may apply the seven-year period from the date of declaration instead of from the date of transfer to the UDA.

Authority. Section 124(5) of the Companies Act, 2013

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

After the transfer of Mr Arvind's dividend and shares to the IEPF, what remedy is available to him?

1. He can file a suit only against the company and not against the IEPF
2. He has no remedy once the amount and shares are transferred to the IEPF
3. He can claim only the dividend amount and not the shares
4. He may apply to the IEPF Authority for refund of the dividend and reclaim the shares in the prescribed manner (correct answer)

Answer: D — He may apply to the IEPF Authority for refund of the dividend and reclaim the shares in the prescribed manner

Explanation. A person claiming to be entitled to money credited to the IEPF may apply to the Authority under Section 125(4) for payment. A claimant of shares transferred to the IEPF is entitled to reclaim the transferred shares in accordance with the prescribed procedure and on submission of prescribed documents. Therefore, Mr Arvind can claim both the dividend and the shares.

Where it goes wrong. Students may think IEPF transfer extinguishes the shareholder's rights permanently or that only the dividend can be recovered.

Authority. Section 125(4) of the Companies Act, 2013; Section 124(6) of the Companies Act, 2013

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

Scenario. Nirmal Precision Ltd held its Annual General Meeting on 30 September 2026 and declared a final dividend of 8% on 10,00,000 equity shares of Rs 10 each, aggregating Rs 80 lakh. Dividend warrants were posted to most shareholders on 25 October 2026. Four cases remained unpaid. Mr Keshav held 5,000 shares and owed Rs 20,000 towards call money; the company lawfully adjusted his dividend of Rs 4,000 against that due. Mrs Lata had mandated the company to credit her dividend directly to her bank account, but the bank returned the payment because the surname in the bank records differed; the company did not inform Mrs Lata of this discrepancy. Mr Om's dividend was restrained by a court order pending a family succession dispute. Mr Prem had directed payment to a bank branch that had closed, and the company communicated to him that it could not comply with his direction. The company did not pay these four shareholders. One director was knowingly a party to the non-payment in Mrs Lata's case. The shareholders have demanded interest at 18% per annum from the date of declaration and are also asking whether the directors can be imprisoned and fined.

In Mr Keshav's case, the company adjusted his dividend against call money due from him. What is the legal position under Section 127?

1. The company has committed an offence because dividend must always be paid in cash
2. No offence is deemed to have been committed because the dividend was lawfully adjusted against a sum due from the shareholder (correct answer)
3. The company must pay interest at 18% per annum from the date of declaration
4. The adjustment is valid only if approved by the Registrar of Companies

Answer: B — No offence is deemed to have been committed because the dividend was lawfully adjusted against a sum due from the shareholder

Explanation. The proviso to Section 127 provides that no offence is deemed to have been committed where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder. Since Mr Keshav owed call money and the dividend was lawfully adjusted, the non-payment does not attract Section 127 punishment or interest.

Where it goes wrong. Students may treat every non-payment as an offence and overlook the statutory exception for lawful adjustment.

Authority. Proviso to Section 127 of the Companies Act, 2013

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

In Mrs Lata's case, the bank returned the dividend due to a surname mismatch and the company did not inform her. What is the consequence?

1. No offence arises because the company attempted payment through the bank
2. Only the bank is liable for returning the dividend
3. Section 127 applies because the direction could not be complied with and non-compliance was not communicated to the shareholder (correct answer)
4. The company is liable only to pay a penalty of Rs 1 lakh and no interest

Answer: C — Section 127 applies because the direction could not be complied with and non-compliance was not communicated to the shareholder

Explanation. One of the exceptions under Section 127 applies where a shareholder has given directions regarding payment of dividend and those directions cannot be complied with, but the non-compliance has been communicated to the shareholder. Here the company failed to communicate the bank's return. Therefore, the exception does not apply, and Section 127 consequences follow, including 18% simple interest and director liability if knowingly a party.

Where it goes wrong. Students may see a payment attempt and assume compliance, missing the requirement to communicate non-compliance.

Authority. Proviso to Section 127 of the Companies Act, 2013

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

In Mr Om's case, payment was restrained by a court order pending a succession dispute. What is the correct legal position?

1. The company must pay 18% interest because the shareholder did not receive dividend
2. The company must transfer the amount to the IEPF immediately
3. The director is liable to imprisonment because payment was not made within 30 days
4. No offence is deemed to have been committed because the dividend could not be paid by reason of the operation of law (correct answer)

Answer: D — No offence is deemed to have been committed because the dividend could not be paid by reason of the operation of law

Explanation. The proviso to Section 127 exempts punishment where the dividend could not be paid by reason of the operation of any law. A court order restraining payment falls within this exception. Therefore, the company and its directors do not attract Section 127 punishment or interest for non-payment during the restraint.

Where it goes wrong. Students may ignore the express exception for operation of law and apply the 18% interest rule mechanically.

Authority. Proviso to Section 127 of the Companies Act, 2013

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

In Mrs Lata's case, a director was knowingly a party to the default. What punishment can be imposed on such director under Section 127?

1. Imprisonment up to two years and a minimum fine of Rs 1,000 for every day during which the default continues (correct answer)
2. Only a penalty of Rs 25,000 with no imprisonment
3. Imprisonment up to six months and a fixed fine of Rs 5,000
4. Only disqualification from directorship for five years

Answer: A — Imprisonment up to two years and a minimum fine of Rs 1,000 for every day during which the default continues

Explanation. Under Section 127, every director of the company who is knowingly a party to the default is punishable with imprisonment up to two years and is also liable to a minimum fine of Rs 1,000 for every day during which the default continues. The company is separately liable to pay simple interest at 18% per annum during the default period.

Where it goes wrong. Students may confuse Section 127 director liability with the Section 124(8) officer penalty of Rs 25,000 or with a six-month imprisonment limit.

Authority. Section 127 of the Companies Act, 2013

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

Scenario. Suryodaya Infra Ltd declared a dividend for 2016-17 on 25 September 2016. The unpaid dividend of Mr Naresh amounting to Rs 60,000 was transferred to the Unpaid Dividend Account on 10 November 2016. The amount remained unclaimed, and the company transferred it to the Investor Education and Protection Fund in December 2023 along with interest. Because dividend on Mr Naresh's 2,000 shares remained unpaid for seven consecutive years, the company transferred those shares to the IEPF in January 2024 along with the prescribed statement. Mr Naresh now claims both the dividend amount and the shares. The company also wants to utilise the IEPF for refunds of unclaimed dividends and matured deposits, promotion of investors' education and awareness, distribution of a disgorged amount among eligible applicants who suffered losses, reimbursement of legal expenses in a class action suit, and a donation to a political party. The IEPF Authority has received Mr Naresh's claim. The company asks whether it can get back any amount from the IEPF as the company that transferred it, and whether Mr Naresh can reclaim the shares.

Mr Naresh wants to recover his dividend and shares from the IEPF. Which statement is correct?

1. He can recover only the dividend amount, not the shares
2. He must wait for the company to buy back the shares from the IEPF
3. He may apply to the IEPF Authority for refund of the dividend and reclaim the shares in the prescribed manner (correct answer)
4. He can recover both only by filing a suit against the Central Government

Answer: C — He may apply to the IEPF Authority for refund of the dividend and reclaim the shares in the prescribed manner

Explanation. Section 125(4) allows a person claiming to be entitled to money credited to the IEPF to apply to the Authority for payment. The right to reclaim shares transferred to the IEPF is also expressly recognised, subject to the prescribed procedure and documents. Therefore, Mr Naresh can claim both the dividend and the shares from the IEPF Authority.

Where it goes wrong. Students may think shares transferred to IEPF cannot be reclaimed or that a court suit is the only remedy.

Authority. Section 125(4) of the Companies Act, 2013; Section 124(6) of the Companies Act, 2013

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

Which of the following proposed uses of the IEPF is not permissible under Section 125(3)?

1. Refund of unclaimed dividends and matured deposits
2. Donation to a political party for investor awareness (correct answer)
3. Distribution of a disgorged amount among eligible applicants who suffered losses
4. Reimbursement of legal expenses in a class action suit sanctioned by the Tribunal

Answer: B — Donation to a political party for investor awareness

Explanation. Section 125(3) permits utilisation of the IEPF for refunds of unclaimed dividends, matured deposits and debentures, application money and interest; promotion of investors' education, awareness and protection; distribution of disgorged amounts among eligible applicants; reimbursement of legal expenses in class action suits under Sections 37 and 245; and incidental purposes. A political donation is not a permissible utilisation.

Where it goes wrong. Students may treat investor awareness broadly and approve any donation labelled for awareness.

Authority. Section 125(3) of the Companies Act, 2013

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

Can Suryodaya Infra Ltd claim back from the IEPF the amount it transferred as unpaid dividend?

1. Yes, because the company was the original holder of the unpaid dividend
2. Yes, if the company proves that it had complied with Section 124
3. Yes, after seven years from the date of transfer to the IEPF
4. No, the amount is meant for refund to entitled claimants and the company cannot reclaim it as its own (correct answer)

Answer: D — No, the amount is meant for refund to entitled claimants and the company cannot reclaim it as its own

Explanation. The IEPF is a fund utilised for refunds to entitled claimants and for investor protection purposes. The company that transferred unpaid dividend to the IEPF does not retain a right to reclaim the amount as its own. Only a person claiming to be entitled to the money may apply to the Authority for payment.

Where it goes wrong. Students may think the transferor company can recover the amount like a deposit or that compliance with Section 124 creates a refund right.

Authority. Section 125(3) of the Companies Act, 2013; Section 125(4) of the Companies Act, 2013

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

Was the transfer of Mr Naresh's 2,000 shares to the IEPF in January 2024 valid?

1. Valid, because dividend on those shares remained unpaid or unclaimed for seven consecutive years or more (correct answer)
2. Invalid, because shares can be transferred only after the dividend amount is transferred to the IEPF
3. Valid only if Mr Naresh had been served with a notice before the transfer
4. Invalid, because the company should have sold the shares and transferred only the sale proceeds

Answer: A — Valid, because dividend on those shares remained unpaid or unclaimed for seven consecutive years or more

Explanation. Section 124(6) requires shares in respect of which dividend has not been paid or claimed for seven consecutive years or more to be transferred to the IEPF. Mr Naresh did not claim dividend for seven consecutive years. The transfer of shares is a separate statutory consequence and is valid.

Where it goes wrong. Students may impose extra conditions such as prior notice or sale of shares, which are not required by Section 124(6).

Authority. Section 124(6) of the Companies Act, 2013

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

Scenario. Mr D delivered a duly executed instrument of transfer of 1,000 shares of Kiran Ltd to Mr E. The company has not yet registered the transfer. The registered holder, Mr D, has not authorised the company in writing to pay dividend to Mr E. The company declares dividend on those shares. To whom should the dividend be paid?

Mr D delivered a duly executed instrument of transfer of 1,000 shares of Kiran Ltd to Mr E. The company has not yet registered the transfer. The registered holder, Mr D, has not authorised the company in writing to pay dividend to Mr E. The company declares dividend on those shares. To whom should the dividend be paid?

1. To Mr E, because he is the beneficial owner after delivering the transfer deed
2. To the Unpaid Dividend Account, unless the registered holder authorises payment to the transferee in writing (correct answer)
3. To the IEPF immediately
4. To Mr D and Mr E equally

Answer: B — To the Unpaid Dividend Account, unless the registered holder authorises payment to the transferee in writing

Explanation. Section 126 provides that where a transfer instrument has been delivered but registration has not taken place, the company must transfer the dividend relating to those shares to the Unpaid Dividend Account unless the registered holder authorises in writing payment to the transferee specified in the instrument. Mere delivery of the transfer deed does not make the transferee entitled to direct payment.

Where it goes wrong. Students may treat the transferee as the owner before registration and direct payment to him.

Authority. Section 126 of the Companies Act, 2013

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

Scenario. A company declared dividend on 1 August 2026 but failed to post dividend warrants to a shareholder within 30 days. The default continued for 20 days thereafter. What interest liability arises under Section 127?

A company declared dividend on 1 August 2026 but failed to post dividend warrants to a shareholder within 30 days. The default continued for 20 days thereafter. What interest liability arises under Section 127?

1. Simple interest at 12% per annum from the date of declaration
2. Compound interest at 18% per annum from the date of default
3. Simple interest at 18% per annum during the period for which the default continues (correct answer)
4. No interest is payable if the warrant is ultimately posted

Answer: C — Simple interest at 18% per annum during the period for which the default continues

Explanation. Section 127 provides that where a company fails to pay declared dividend or post the warrant within 30 days from declaration, the company shall be liable to pay simple interest at 18% per annum during the period for which the default continues. The interest is simple, not compound, and the rate is not 12%.

Where it goes wrong. Students may apply the 12% UDA interest rate or compound interest instead of the Section 127 rate.

Authority. Section 127 of the Companies Act, 2013

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

Scenario. A company could not pay dividend to a shareholder because a statutory authority had frozen the shareholder's bank account and prohibited credits. The company communicated the position to the shareholder. Which statement is correct under Section 127?

A company could not pay dividend to a shareholder because a statutory authority had frozen the shareholder's bank account and prohibited credits. The company communicated the position to the shareholder. Which statement is correct under Section 127?

1. No offence is deemed to have been committed because the dividend could not be paid by reason of the operation of law (correct answer)
2. The company must pay 18% interest because payment was not made within 30 days
3. The director is liable to imprisonment because non-payment is absolute
4. The company must transfer the amount to the IEPF immediately

Answer: A — No offence is deemed to have been committed because the dividend could not be paid by reason of the operation of law

Explanation. The proviso to Section 127 exempts punishment where dividend could not be paid by reason of the operation of any law. A statutory freeze prohibiting credit is an operation of law. Therefore, no offence is deemed to have been committed, and the 18% interest and director punishment do not apply for that period.

Where it goes wrong. Students may treat every failure to pay within 30 days as an offence, ignoring statutory exceptions.

Authority. Proviso to Section 127 of the Companies Act, 2013

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

Scenario. A shareholder did not claim dividends for 2018-19, 2019-20, 2020-21, 2021-22 and 2022-23, but claimed the dividend for 2023-24. The company proposes to transfer his shares to the IEPF in 2026 on the ground of long non-claim. Is the transfer permissible?

A shareholder did not claim dividends for 2018-19, 2019-20, 2020-21, 2021-22 and 2022-23, but claimed the dividend for 2023-24. The company proposes to transfer his shares to the IEPF in 2026 on the ground of long non-claim. Is the transfer permissible?

1. Yes, because the shareholder had unclaimed dividends for five years
2. Yes, because the company can transfer shares after five years of non-claim
3. No, because shares can never be transferred to the IEPF
4. No, because dividend was paid or claimed for 2023-24, which breaks the requirement of seven consecutive years (correct answer)

Answer: D — No, because dividend was paid or claimed for 2023-24, which breaks the requirement of seven consecutive years

Explanation. The Explanation to Section 124(6) states that if any dividend is paid or claimed for any year during the seven consecutive years, the share shall not be transferred to the IEPF. Since the shareholder claimed dividend for 2023-24, the shares did not have seven consecutive years of non-payment and cannot be transferred at this stage.

Where it goes wrong. Students may count total years of default instead of consecutive years and ignore the break caused by a claim.

Authority. Explanation to Section 124(6) of the Companies Act, 2013

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

Scenario. A company failed to comply with the requirements of Section 124 relating to the Unpaid Dividend Account. What penalty is prescribed for the company and its officer in default under Section 124(8)?

A company failed to comply with the requirements of Section 124 relating to the Unpaid Dividend Account. What penalty is prescribed for the company and its officer in default under Section 124(8)?

1. Company: Rs 50,000; officer: Rs 10,000, with no continuing penalty
2. Company: Rs 5 lakh; officer: Rs 50,000, with no continuing penalty
3. Company: Rs 1 lakh and Rs 500 per day continuing up to Rs 10 lakh; officer: Rs 25,000 and Rs 100 per day continuing up to Rs 2 lakh (correct answer)
4. Company: Rs 10 lakh; officer: Rs 2 lakh, both fixed

Answer: C — Company: Rs 1 lakh and Rs 500 per day continuing up to Rs 10 lakh; officer: Rs 25,000 and Rs 100 per day continuing up to Rs 2 lakh

Explanation. Section 124(8) prescribes a penalty of Rs 1 lakh on the company and, for continuing failure, a further penalty of Rs 500 for each day after the first, subject to a maximum of Rs 10 lakh. Every officer in default is liable to a penalty of Rs 25,000 and, for continuing failure, Rs 100 for each day after the first, subject to a maximum of Rs 2 lakh.

Where it goes wrong. Students may confuse Section 124(8) penalties with the Section 127 director punishment or with the Section 86 charge-related penalties.

Authority. Section 124(8) of the Companies Act, 2013

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

Scenario. A director of a company knowingly participated in a default in posting dividend warrants within 30 days of declaration. Which punishment applies to the director under Section 127?

A director of a company knowingly participated in a default in posting dividend warrants within 30 days of declaration. Which punishment applies to the director under Section 127?

1. A fixed fine of Rs 25,000 only
2. Imprisonment up to two years and a minimum fine of Rs 1,000 for every day of continuing default (correct answer)
3. Imprisonment up to six months and a fine of Rs 5,000
4. Disqualification from directorship for five years only

Answer: B — Imprisonment up to two years and a minimum fine of Rs 1,000 for every day of continuing default

Explanation. Under Section 127, every director who is knowingly a party to the default is punishable with imprisonment up to two years and is also liable to a minimum fine of Rs 1,000 for every day during which the default continues. The company is separately liable to pay simple interest at 18% per annum.

Where it goes wrong. Students may apply the Section 124(8) officer penalty of Rs 25,000 instead of the Section 127 director punishment.

Authority. Section 127 of the Companies Act, 2013

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

Scenario. A person claims to be entitled to unclaimed dividend that has been transferred to the IEPF. Under Section 125(4), to whom should the claim application be made?

A person claims to be entitled to unclaimed dividend that has been transferred to the IEPF. Under Section 125(4), to whom should the claim application be made?

1. To the Authority constituted for administration of the IEPF (correct answer)
2. To the Registrar of Companies that registered the company
3. To the scheduled bank that maintained the Unpaid Dividend Account
4. To the National Company Law Tribunal

Answer: A — To the Authority constituted for administration of the IEPF

Explanation. Section 125(4) provides that any person claiming to be entitled to the amount referred to in Section 125(2) may apply to the Authority constituted under Section 125(5) for payment of the money claimed. The application is not made to the Registrar, the bank or the Tribunal.

Where it goes wrong. Students may confuse the IEPF Authority with the company, ROC or NCLT as the claim forum.

Authority. Section 125(4) of the Companies Act, 2013

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

Scenario. A shareholder delivered a transfer deed for 500 shares, but the company has not registered the transfer. The registered holder has not authorised payment of dividend to the transferee. What must the company do regarding the dividend and any rights or bonus shares on those shares?

A shareholder delivered a transfer deed for 500 shares, but the company has not registered the transfer. The registered holder has not authorised payment of dividend to the transferee. What must the company do regarding the dividend and any rights or bonus shares on those shares?

1. Pay dividend to the transferee and issue rights shares to the transferee
2. Pay dividend to the registered holder and ignore the transfer deed
3. Transfer the dividend to the IEPF and cancel the shares
4. Transfer the dividend to the Unpaid Dividend Account and keep any offer of rights shares and bonus shares in abeyance (correct answer)

Answer: D — Transfer the dividend to the Unpaid Dividend Account and keep any offer of rights shares and bonus shares in abeyance

Explanation. Section 126 requires the company, where a transfer instrument has been delivered but registration has not taken place, to transfer the dividend to the Unpaid Dividend Account unless the registered holder authorises payment to the transferee in writing. It must also keep in abeyance any offer of rights shares and any issue of fully paid bonus shares in relation to those shares.

Where it goes wrong. Students may pay the transferee or ignore the requirement to keep rights and bonus shares in abeyance.

Authority. Section 126 of the Companies Act, 2013