Another relaxation sought is on Section 134 of the Companies Act, which deals with the report by the company board.
The ministry of corporate affairs (MCA) has received representations from industry bodies and companies for relaxation in Section 123 of the Companies Act, which deals with the declaration and payment of dividend to the shareholders, officials said.
Sources said citing the Covid-19 outbreak, companies also urged the government that the report of the board of directors should be allowed to include the pandemic’s impact on businesses and also whether the “going concern” position of a company is sustainable due to this pandemic.
Generally, dividend is paid for a financial year after the final accounts have been prepared and the amount of distributable profits is available. Final dividend is paid only if it is declared by the firm at its annual general meeting (AGM) on recommendation of the board of directors. Dividends are also paid by the board between two annual general meetings without declaring them at an annual general meeting and is called interim dividend.
One of the sources said, “Firms want relaxation in Rule 3 of Section 123, which states that board may declare interim dividend during any fiscal or at any time during the period from closure of financial year till holding of AGM out of the surplus in profit and loss account, or out of profits of the financial year for which such interim dividend is sought to be declared, etc”.
Another relaxation sought is on Section 134 of the Companies Act, which deals with the report by the company board. This report, which is part of the annual report, basically informs and explains to the shareholders about the company’s financial position, its operations and the scope of business.
Nangia Andersen director Sandeep said that the nationwide lockdown and slump in demand is sure to have an adverse impact on the financial results of business houses across industries, and retraction of the investors in the month of March 2020 is a prelude to it.
As an interim solution to hold the interest of global and domestic investors, India Inc seeks a dual-fold measure from the government. First being the relaxation of Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014 on conditions related to declaration of dividends out of reserves and second being inclusion of Covid-19 contagion effect on business in the report of Board for FY 19-20 and FY 20-21, he added.
“When the core business is impacted, the healthy cash reserves can come to rescue for high dividend paying companies to lift investors’ sentiments. As the coronavirus outbreak threatens to tip the world into a deep recession, inclusion of financial effects of the pandemic could be a move to reflect the true and fair view of the Company to its investors,” Jhunjhunwala explained.