Unclaimed Dividend – All about unpaid dividend and how to claim it

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A dividend is a portion of a company’s profits which is distributed to shareholders. The Board of Directors determines and declares the dividend per share. A final Dividend is declared at the end of the fiscal year, while an interim Dividend is declared quarterly or half-yearly. Dividends are paid on a predetermined date. An unclaimed dividend is a dividend paid by the company but not yet claimed or availed by the shareholder. It is paid on demand by the company and is a liability for the company.

Difference between Unpaid dividend and unclaimed dividend 

When a company pays dividends to its shareholders, the dividends should be ideally claimed by shareholders. However, dividends may remain unclaimed some times for several reasons like wrong address and wrong bank account in records. These are recorded as unclaimed dividends.

On the other hand, when a company fails to pay dividends to shareholders after announcing, it is considered unpaid dividends. Dividends of this type are kept in a separate account called unpaid dividend account.

Unclaimed dividend is shown under which side in balance sheet?

Unclaimed dividend is shown under the liability side of the balance sheet. Unclaimed dividends must be paid by the company as and when they are demanded, and thus constitute a liability for the company. It is a current liability because it is usually due within 12 months. On a company’s balance sheet, both unpaid and unclaimed dividends are recorded as current liabilities. When unpaid and unclaimed dividends are paid, the current liabilities account is cleared.

Unclaimed Dividend is shown under
Unclaimed Dividend is shown under current liability

Claiming Unclaimed Dividend From IEPF 

An amount transferred to the Company’s Unpaid Dividend Account that has been unpaid or unclaimed for more than 7 years is transferred to the Investor Education & Protection Fund (IEPF), along with the accrued interest, and the company then sends a statement in Form IEPF-1 to the IEPF Authority with the details of such transfer. The Authority then administers the fund and issues a receipt to the company as proof of such transfer. 

Unclaimed and Unpaid dividend
IEPF

The entire procedure for recovering such dividends from the IEPF is outlined in Rule 7 of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer, and Refund) Rules, 2016. An investor may claim from the IEPF unclaimed or unpaid dividends, matured debentures, matured deposits, application money due for refund, interest, sale proceeds of fractional shares, redemption proceeds of preference share etc. by following the specific procedure outlined in this Rule.

Section 124: Unpaid Dividend Account 

Section 124 of the Companies Act 2013 talks about unpaid dividend account 

  1. Where a dividend has been declared by a company but has not been paid or claimed within 30 days from the date of the declaration to any shareholder entitled to the payment of the dividend, the company shall, within 7 days from the date of expiry of the said period of 30 days, transfer the total amount of dividend which remains unpaid or unclaimed to a special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account. 
  2. The company shall, within a period of 90 days of making any transfer of an amount to the Unpaid Dividend Account, prepare a statement containing the names, their last known addresses and the unpaid dividend to be paid to each person and place it on the website of the company, if any, and also on any other website approved by the Central Government for this purpose, in such form, manner and other particulars as may be prescribed.
  3. If any default is made in transferring the total amount referred to in sub-section (1) or any part thereof to the Unpaid Dividend Account of the company, it shall pay, from the date of such default, interest on so much of the amount as has not been transferred to the said account, at the rate of 12% per annum and the interest accruing on such amount shall ensure to the benefit of the members of the company in proportion to the amount remaining unpaid to them.
  4. Any person claiming to be entitled to any money transferred under sub-section (1) to the Unpaid Dividend Account of the company may apply to the company for payment of the money claimed. 
  5. Any money transferred to the Unpaid Dividend Account of a company which remains unpaid or unclaimed for a period of 7 years from the date of such transfer shall be transferred by the company along with interest accrued, if any, thereon to the Fund established under sub-section (1) of section 125 and the company shall send a statement in the prescribed form of the details of such transfer to the authority which administers the said Fund and that authority shall issue a receipt to the company as evidence of such transfer. 
  6. All shares in respect of which dividend has not been paid or claimed for seven consecutive years or more shall be transferred by the company in the name of IEPF along with a statement containing such details as may be prescribed: 
    Provided that any claimant of shares transferred above shall be entitled to claim the transfer of shares from Investor Education and Protection Fund in accordance with such procedure and on submission of such documents as may be prescribed.
  7. If a company fails to comply with any of the requirements of this section, such company shall be liable to a penalty of INR1 lakh and in case of continuing failure, a further penalty of INR5,000 for each day after the first during which such failure continues, subject to a maximum of INR10 lakh and every officer of the company who is in default shall be liable to a penalty of INR25,000 and in case of continuing failure, with a further penalty of INR100 for each day after the first during which such failure continues, subject to a maximum of INR2 lakh.

We hope this article has been able to help you with understanding the nature of unclaimed and unpaid dividends.

Happy Investing!

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