Scope of the section explained in the context of expressions “has not been paid” and “warrant in respect thereof has not been posted” used therein. - Companies Law - Circular: No. 6/8/76‑CL‑XIV

Circular: No. 6/8/76 ‑ CL ‑ XIV [8/30/(205A)/75 ‑ CL ‑ V] dated 26 ‑ 9 ‑ 1977. Subject:- Dividends - Transfer of unpaid dividend ‑ Scope of the section explained in the context of expressions has not been paid and warrant in respect thereof has not been posted used therein. It is pointed out that there seems to be some misunderstanding as to whether Circular No. 7/77, dated 4-6-1977 in any way supersedes Circular No. 28/76, dated 1‑8‑1976. In this connection, a perusal of the circulars (printed as Clarifications 2 and 3) will show that there is no contradiction. Circular No. 28/76, dated 1‑9‑1976 (printed as Clarification 3) is confined to the interpretation of the two expressions has not been paid and the warrant in respect thereof has not been posted . The background of issuing this circular was that in accordance with sub-section (1) of section 205A, the company is required to pay the dividend within 42 days from the date of its declaration and within next 7 days thereafter it is required to transfer to a special account to be opened by the company to be called UNPAID DIVIDEND ACCOUNT OF ... COMPANY LIMITED/COMPANY (PRIVATE) LIMITED all that amount which remains unpaid or in relation to which no dividend warrant has been posted within the said period of 42 days. In this way there are two methods of payment, namely (i) payment by‑cash, and (ii) payment by posting warrant. The company could post warrants even on the 42nd day and such warrants may not be cashed within the next 7 days. The question arose as to whether the company is required to transfer to the unpaid dividend account to be opened in terms of sub‑section (1) even those amounts which are presented by the warrants already posted by the company. It was in this context that it was clarified by this Department s Circular No. 28/76 dated 1‑9‑1976 that the two expressions has not been paid and the warrant in respect thereof has not been posted used in sub‑section (1) of section 205A denote two separate contingencies and where the company has posted the dividend warrant within 42 days from the date of declaration of dividend but the dividend warrant has not been encashed within the period of 7 days thereafter, the provisions of sub-section (1) we complied with by the company. This circular ended there. The question then arose as to what will happen if the warrants are received back by the company undelivered or they are not cashed by the recipients or their validity is over. You will appreciate that the intention while enacting section 205A was that once the dividend is declared, it is the property of the shareholders and it should be paid to them promptly within 42 days as is required under section 207, and thereafter to the extent it remains unpaid or unclaimed this money should be transferred to the special account. It was hence clarified in Circular No. 7/77, dated 4‑6‑1977 that in all cases where the warrants remain uncashed, the money represented by them will not flow back to the general account of the company but will go to the special account opened by the company in terms of sub‑section (1) of section 205A. There is, therefore, no contradiction between the two circulars. In fact, the two circulars taken together, and in the light of the position as explained aforesaid, would clarify the position fully.