PQ Ltd. declared and paid 10% dividend to all its shareholders except Mr. Kumar, holding 500equity shares, who instructed the company to deposit the dividend amount directly in his bankaccount. The company accordingly remitted the dividend, but the bank returned the paymenton the ground that the account number as given by Mr. Kumar doesn't tally with the recordsof the bank. The company, however, did not inform Mr. Kumar about this discrepancy.Comment on this issue with reference to the provisions of the Companies Act, 2013 regardingfailure to distribute dividend
Question
PQ Ltd. declared and paid 10% dividend to all its shareholders except Mr. Kumar, holding 500equity shares, who instructed the company to deposit the dividend amount directly in his bankaccount. The company accordingly remitted the dividend, but the bank returned the paymenton the ground that the account number as given by Mr. Kumar doesn't tally with the recordsof the bank. The company, however, did not inform Mr. Kumar about this discrepancy.Comment on this issue with reference to the provisions of the Companies Act, 2013 regardingfailure to distribute dividend
Solution
Under the Companies Act, 2013, specifically Section 127, if a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within 30 days from the date of declaration to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to two years and with fine which shall not be less than one thousand rupees for every day during which such default continues.
In the case of Mr. Kumar, the company did attempt to pay the dividend by depositing it directly into his bank account as per his instructions. However, due to a discrepancy in the account number provided by Mr. Kumar, the bank returned the payment. The company is at fault for not informing Mr. Kumar about this discrepancy, as it is their responsibility to ensure that the dividend reaches the shareholder.
The company should have taken immediate steps to inform Mr. Kumar about the issue and sought correct bank details to remit the dividend. Failure to do so can be seen as a violation of the provisions of the Companies Act, 2013. Therefore, the directors of the company could potentially face penalties if they knowingly did not take steps to rectify this issue.
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