Declaration and Payment of Dividend

(a)According to Section 123(1)(a) of the Companies Act, 2013, no dividend shall be declared or paid by a company for any financial year except:

(i)out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of Schedule II, or

(ii)out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with the provisions of that sub-section and remaining undistributed, or

(iii)out of both.

As per the third proviso of the above sub-section, where, owing to inadequacy or absence of profits in any financial year, any company proposes to declare dividend out of the accumulated profits earned by it in previous years and transferred by the company to the free reserves, such declaration of dividend shall not be made except in accordance with such rules as may be prescribed in this behalf:

Provided also that no dividend shall be declared or paid by a company from its reserves other than free reserves.

As per the facts of the questions and the provisions of the Companies Act, 2013:

(1)In terms of the provision of Section 123(1)(a), ABC Limited has adequate profits in the current year ( ₹ 1,350 lakhs) after

providing for depreciation, to pay the proposed dividend of ₹ 300 lakhs. Hence, the Company is eligible to pay the requisite

dividend out of current year profits.

(2)In terms of the same provision of Section 123(1)(a), the Company can also utilise its past accumulated retained earnings of ₹ 2,000 lakhs and free reserves of ₹ 500 lakhs from previous financial years for declaring dividends of ₹ 300 lakhs even without utilising its

current year’s profits provided that depreciation has been appropriately accounted for, and since the current year’s profits are not inadequate, the above proviso will not be applicable. Hence, the Company is eligible to pay the requisite dividend out of accumulated profits and reserves of the previous financial years.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2026, 1(a) (New Scheme).

(b)As per Section 52(2) of the Companies Act, 2013, the securities premium account may be applied by the company:

(a)towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares.

(b)in writing off the preliminary expenses of the company.

(c)in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company.

(d)in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company; or

(e)for the purchase of its own shares or other securities under section 68 (Buy-back).

In view of the provisions of the Act and facts of the question:

(1)Securities Premium Account cannot be utilized to write off advertisement expenses as they are not in the nature of preliminary expenses of the company.

(2)Securities Premium Account can be utilized to issue fully paid bonus shares worth ₹ 2 crore to the existing shareholders.

(3)Securities Premium Account can be utilized to provide ₹ 1.5 crore for

the premium payable on redemption of preference shares.

(4)Securities Premium Account cannot be utilized to distribute ₹ 1 crore

as interim dividend (in case of inadequate profits).

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2026, 1(b) (New Scheme).

(a)According to second proviso to section 123, where in any year there are no adequate profits for declaring dividend, the company may declare dividend out of the accumulated profits earned by it in previous years and transferred by it to the free reserves only in accordance with the procedure laid down in Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014.

Free Reserves means such reserves which, as per the latest audited balance sheet of a company, are available for distribution as dividend.

Under Rule 3 such declaration shall be subject to the following conditions:

CONDITION I

The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by the company in the immediately preceding three years.

However, this condition shall not apply if the company has not declared any dividend in each of the three preceding financial year.

CONDITION II

The total amount to be drawn from such accumulated profits shall not exceed 10% of its paid-up share capital and free reserves as appearing in the latest audited financial statement.

CONDITION III

The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividend is declared and only thereafter, any dividend in respect of equity shares shall be declared.

CONDITION IV

The balance of reserves after such withdrawal shall not fall below 15% of its paid- up share capital as appearing in the latest audited financial statement.

In the given question, since Long Boots Ltd. current year profits of ₹ 16 lakh are insufficient to meet the dividend requirement of ₹ 50 lakh, hence the company has to fulfil the conditions as prescribed under Rule 3 (mentioned above).

(G)

(F)more than (G)

In the given question, since all the conditions are met, hence Long Boots Ltd. has validly declared dividend.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2024, 4(a) (New Scheme).

(a)As per section 42(6) of the Companies Act, 2013, a company making an offer or invitation under private placement shall allot its securities within 60 days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within 15 days from the expiry of 60 days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of 12% per annum from the expiry of the 60th day.

It is provided that the monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than:

(1)for adjustment against allotment of securities; or

(2)for the repayment of monies where the company is unable to allot securities.

In the instant case, application money from the members was received on 15th April, 2022 and company did not make an allotment of shares till 31st July, 2022 i.e. after expiry of the period of 60 days. Hence, the company is liable to repay that money with interest at the rate of 12% per annum from the expiry of the 60th day.

Therefore, the objection raised by the members for non- allotment of shares/ non-refund of share application money within the statutory time limit is valid. However, their claim to pay interest @ 15% is not valid.

Also, the application money cannot be used for the payment of dividends by the company.

OR

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, November 2023, 5(a) (Old Scheme).

(b)Interim dividend: As per section 123(3) of the Companies Act, 2013, the Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared.

Provided that in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years.

Final dividend: The company in general meeting may declare dividends, but no dividend shall exceed the amount recommended by the Board. [Clause 80 of Table F in Schedule I] Accordingly, following shall be the answers:

(i)Interim dividend: According to the given facts, ESPN Heavy Engineering Ltd. incurred losses in current financial year 2021-2022. In the immediately preceding three financial years, the company declared dividend at the rate of 15%, 20% and 25% respectively. Accordingly, the rate of dividend declared shall not exceed 20%, the average of the rates (15+20+25=60/3) at which dividend was declared by it during the immediately preceding three financial years.

Yes, as per law company can declare interim dividend, even if company incurred losses during current financial year. Dividend to be declared shall be given at the rate not exceeding 20%.

(ii)Final dividend: Board of Directors of the Company recommended a final dividend @15% for financial year 2021-2022 in the meeting held on 5th August 2022. It was approved in the general meeting. However, shareholders demanded that since Interim dividend was at the rate of 10%, so final dividend should not be less than 20%. The general meeting cannot declare the dividend at a rate higher than the rate of dividend recommended by the Board.

Yes, the decision of Company Secretary that final dividend cannot be increased beyond the rate of 15% as recommended in the Board Meeting, is correct.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2023, 1(b) (Old Scheme).

(b)In the given question, the company is intending to declare dividend out of current year profits and past year ’ s profits. As per provisions of Section 123 of the Companies Act, 2013, where in any year, there are no adequate profits for declaring dividend, the company may declare dividend out of the profits of any previous year transferred by it to the free reserves only in accordance with the procedure laid down in Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014.

Conditions of Rule 3:

Condition 1: The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by the company in the immediately preceding three years.

Condition 2: The total amount to be drawn from such accumulated profits shall not exceed 10% of its paid-up share capital and free reserves as appearing in the latest audited financial statement.

Condition 3: The balance of reserves after such withdrawal shall not fall below 15% of its paid up share capital as appearing in the latest audited financial statement.

Calculations For Each Condition

Condition 1: This condition shall not apply if the company has not declared any dividend in each of the three preceding financial year.

Thus, condition 1 shall not be applicable on the company in question as it has not declared dividend in last 5 years.

Condition 2: As per the facts, the Board proposes a payment of dividend of ₹ 30 lakhs i.e., 30% on the paid up capital.

So, the Paid up Share Capital of the company = ₹ 100 Lakh

Hence the dividend to be declared is to be restricted to ₹ 17.5 Lakh.

Condition 3:

Here, Free Reserves = ₹ 75 Lakh

Proposed withdrawal for declaration of dividend ₹ 17.5 Lakh

Balance of Reserves = ₹ 75 Lakh- 17.5 Lakh = ₹ 57.5 Lakh

This (balance of reserve) is more than 15% of paid-up capital (i.e 15% of ₹ 100 Lakh) i.e. ₹ 15 Lakh.

Thus, the company can declare a dividend of ₹ 17.5 lakh i.e. at a rate of 17.5% on its paid-up capital of ₹ 100 lakh.

Hence, the proposal of company for payment of dividend of ₹ 30 lakh i.e. 30% on the paid up capital in the current year in which it has earned a profit of ₹ 12 lakh, is invalid.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, November 2022, 2(b) (Old Scheme).

(a)(i) As per section 90(1) of the Companies Act, 2013, every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests, of not less than twenty-five percent or such other percentage as may be prescribed, in shares of a company or the right to exercise, or the actual exercising of significant influence or control as defined in clause (27) of section 2, over the company (herein referred to as “significant beneficial owner”), shall make a declaration to the company, specifying the nature of his interest and other particulars, in such manner and within such period of acquisition of the beneficial interest or rights and any change thereof, as may be prescribed.

As per Rule 2(1)(h) of the Companies (Significant Beneficial Owners) Rules, 2018, “Significant Beneficial Owner” means an individual, referred to in sub-section (1) of section 90 of the Act, who, acting alone or together, or through one or more persons or trust, satisfies one or more of the following:

(i)holds, indirectly, or together with any direct holdings, not less than ten per cent of the shares of the reporting company;

(ii)holds, indirectly or together with any direct holdings, not less than ten per cent of the voting rights in the shares of the reporting company;

(iii)has right to receive or participate in not less than ten per cent of the total distributable dividend or any other distribution payable in a financial year, through indirect holdings alone or together with any direct holdings;

(iv)has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings alone.

In the question given, Ms. Martha is holding equity shares amounting ₹ 6,50,000 in her name (directly) and amounting ₹ 3,00,000 (having

beneficial interest). Thus, her total holding considering both direct and indirect holding of shares amounts to ₹ 9,50,000, which is less than the stipulated amount of 10% of (1,20,000 shares of ₹ 100 each) i.e. 10% of Rs 1,20,00,000, i.e. ₹ 12,00,000. Therefore, she is not

required to file the declaration as mentioned by CA. Ms. Marina.

(ii)Rule 8 of the Companies (Significant Beneficial Owner) Amendment Rules, 2018 states that the ‘SBO’ Rules shall not be made applicable to the extent the share of the Reporting Company is held by:

(a)the Investor Education and Protection Fund Authority [constituted under section 125 (5)];

(b)its holding reporting company provided that the details of such holding reporting company shall be reported in Form No. BEN-2;

(c)the Central Government, State Government or any local authority;

(d)(i) a reporting company or (ii) a body corporate or (iii) an entity, controlled wholly or partly by the Central Government and/ or State Government(s);

(e)investment vehicles such as mutual funds, alternative investment funds (AIFs), Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs) registered with and regulated by the Securities and Exchange Board of India; and

(f)investment vehicles regulated by Reserve Bank of India, Insurance Regulatory and Development Authority of India or Pension Fund Regulatory and Development Authority.

OR

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, September 2025, 5(a) (New Scheme).

(a)(i) (1) Registration by charge holder: Section 78 of the Companies Act, 2013, empowers the holder of charge to get the charge registered in case the company creating the charge on its property fails to do so.

Accordingly, if a charge is created, the company is primarily responsible for registering the charge however it fails to do so within the prescribed period of 30 days [as provided in section 77 (1)], the person in whose favour the charge is created (i.e. charge-holder) may apply to the Registrar for registration of the charge along with the instrument of charge within the prescribed time, form and manner. In light of above provisions, the Nationalized Bank can get the charges registered.

(2)Registrar refuse to register the charges: However, the Registrar shall not allow such registration by the charge-holder, if the company itself registers the charge or shows sufficient cause why such charge should not be registered.

(ii)As per clause (d) of proviso to section 127 of the Companies Act, 2013, where the dividend is declared by a company and there remains calls in arrears or any other sum due from a member, then the dividend can be lawfully adjusted by the company against any such dues.

Thus, ABC Ltd. can adjust the call money dues from Mr. Suresh of ₹ 10,000 against the dividend amount payable to him of ₹ 10,000 (5000 shares x ₹ 2 /- per share).

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2022, 2(a) (Old Scheme).

(a)(i) Whether it is compelling upon the Board to consider the directions regarding shift of the venue of the meeting?

In the case of section 8 company, in pursuance of the second proviso to section 96(2) of the Companies Act, 2013, the time, date and place of each Annual General Meeting is required to be decided upon before-hand by the board of directors having regard to the directions, if any, given in this regard by the company in its general meeting. [Notification G.S.R. 466(E) issued by the Ministry of Corporate Affairs on the 5th June, 2015].

Hence, the directors are bound to consider the directions regarding shifting of venue for the next Annual General Meeting.

Alternate Answer to Part (i)

As per the facts of the question, the members, in one of the general meetings, have strongly suggested that the next AGM of the company be held near the vicinity of the Registered Office at Jaipur instead of the club as the same has congested sitting area.

Since only suggestions have been given in one of the general meetings, the same cannot be construed as a compulsion on the part of the Board to act thereon. A mere suggestion will not tantamount to be a binding direction. In other words, a suggestion is just an idea or an opinion that someone proposes which need be compulsorily acted upon, while a direction is a set of instructions for where to go or what to do.

So, the suggestion by the shareholders is non-binding on the Board.

(ii)Whether a 15 days’ prior notice is valid as per law?

Notification G.S.R. 466(E) issued by the Ministry of Corporate Affairs dated 5th June, 2015 provides that section 8 company can hold a meeting with minimum of 14 days' notice as against 21 days' notice otherwise applicable under section 101 (1) of the Companies Act, 2013.

Hence, the director can validly issue a 15 days' notice being greater than 14 days as provided in the notification and the notice is as per the law.

(iii)Whether the decision to provide the facility of only physical voting and not e-voting valid?

Yes, as per the provision of section 108 of the Companies Act, 2013 read with Rule 20 of the Companies (Management and Administration) Rules, 2014, section 8 company, having a number of members of 1000 or more, is required to provide e- voting facility to its members at a general meeting. Hence, the decision of the foundation, to provide the facility of only physical voting and not E-voting, is not valid as section 8 Company is having 1200 members.

OR

(i)Whether the members Mr. H, Mr. K and Mr. J can validly issue special notice to the company?

According to section 115 of the Companies Act, 2013 (the Act), where, by any provision contained in this Act or in the Articles of a company, special notice is required for passing any resolution, then the notice of the intention to move such resolution shall be given to the company by such number of members holding not less than 1% of the total voting power, or holding shares on which such aggregate sum not exceeding five lakh rupees, as may be prescribed, has been paid-up.

Rule 23 of the Companies (Management & Administration) Rules, 2014, provides that a special notice required to be given to the company shall be signed, either individually or collectively by such number of members holding not less than one percent of total voting power or holding shares on which an aggregate sum of not less than 5,00,000 rupees has been paid up on the date of the notice.

As per section 140 (4) of the Act, a special resolution is required to be passed for appointment of an auditor other than the retiring auditor at an annual general meeting.

Mr. H, Mr. J and Mr. K are together holding shares of (1,50,000 + 1,00,000 + 2,50,000) = ₹ 5,00,000, which is equal to the minimum

required shares to be held by members for validly issuing a Special Notice. Hence, they can validly ask the company to issue the special notice.

(ii)Last date for issue of Special Notice:

Rule 3 of Companies Management and Administrative Amendment Rules 2014:

The notice referred to in sub-rule (1) shall be sent by members to the company not earlier than three months but at least fourteen days before the date of the meeting at which the resolution is to be moved, exclusive of the day on which the notice is given and the day of the meeting.

Hence, in the above case, the special notice shall be sent by the members to the company latest by 13.09.2024.

(iii)Whether the company needs to communicate the special notice to the other members after receipt of the same?

Yes, the company shall immediately after receipt of the notice, give its members notice of the resolution at least seven days before the meeting, exclusive of the day of dispatch of notice and day of the meeting, in the same manner as it gives notice of any general meetings.

Alternate Answer

In the question, it is mentioned that Srinivas Iron and Steel Limited is a Public Sector, Listed Company, which means that, being a Public Sector Company, it is a Government Company.

According to section 139(5) of the Companies Act, 2013, in the case of a Government company or any other company owned or controlled, directly or indirectly, by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, the Comptroller and Auditor-General of India shall, in respect of a financial year, appoint an auditor duly qualified to be appointed as an auditor of companies under this Act, within a period of one hundred and eighty days from the commencement of the financial year, who shall hold office till the conclusion of the annual general meeting.

Changing the Auditor: For changing the Auditor of a Government Company, the Auditor can be changed after seeking consent of the Board and thereafter by writing to the C&AG, New Delhi, by mentioning the reference of negligence on the part of the Statutory Auditors for not reporting the fraud committed in the Company.

Thereafter, considering the request of the company, the C&AG can change the auditor or the audit firm. However, the remuneration of the auditors shall be approved by the shareholders in its general meeting on the recommendations of the Audit Committee as well the Board of Directors of the company.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2025, 6(a) OR (New Scheme).