Provision for grace time for claiming divideds

Shareholders of a company have a right to receive the dividend declared, which is normally paid by the company within 30 days of its declaration. Unlike in the past where investors held physical shares and dividend warrants had to be mailed to them, direct credit is made to the shareholder’s notified account and a mail confirmation sent thereafter.

While some of them still want to receive payments physically, the dividend gets returned for various reasons, such as closure of account, change in address of the beneficiary or erroneous account particulars. In such situations, the company holds the dividend payable to the rightful shareholder. The company must also disclose the particulars of the shareholders, including their names and unpaid dividend. Individual notices are also sent out to the shareholders giving details of the unclaimed amount.

Unpaid dividend

According to the Companies Act, 2013 dividend declared by a company but not claimed within 30 days from the date of declaration shall be transferred to a special account — dividend unpaid account — seven days from the date of expiry of the 30-day window.

So a company has, after the expiry of the mandatory period of 30 days for making the payment, another seven days’ time to transfer the unpaid dividend to a special account.

Any amount transferred to the unpaid dividend account of a company which remains unclaimed for seven years from the date of such transfer will be transferred to the Investor Education and Protection Fund.

The reality 

So a shareholder has seven years and 37 days to stake claim. But do investors really get this time period is the question. The anomaly occurs in the computation of this time period for transfer of unpaid dividend to the Investor Education and Protection Fund. Many companies arrive at the due date by ignoring the seven-day period following the mandatory 30 days for making the payment initially.

But there is no provision for the shareholders to know when the transfer to the escrow account was effected. So, while shareholders should get seven years and 37 days from the date of declaration to stake their claim, they get only seven years and 30 days or probably lesser. Though this may still appear a fairly reasonable period, a shareholder should not be denied the additional time permitted by law.
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About Nitin Aggarwal

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