Section 127 of CA 2013 : Section 127: Punishment For Failure To Distribute Dividends

Explanation using Example

Imagine a company, ABC Corp, declared a dividend on January 1, 2023, but failed to pay the dividend or post the dividend warrant to its shareholder, Mr. John, by January 31, 2023. Mr. John is entitled to the dividend and has not received any communication from the company regarding any issues with the payment.

Under Section 127 of the Companies Act, 2013, if it is found that the directors of ABC Corp were knowingly involved in not paying the dividend, they could face legal consequences. This could include imprisonment for up to two years and a fine of at least one thousand rupees for each day the default continues. Furthermore, ABC Corp would be required to pay simple interest at 18% per annum for the duration of the delay.

However, if ABC Corp can prove that the non-payment of the dividend to Mr. John was due to a legal dispute over his entitlement, or they had a valid reason that is not considered a default according to the exceptions listed in the law, then the directors might not be held liable under this section.