Secretarial Standard on Dividend (SS-3) – A Summary

After Implementation of Secretarial Standard on Meeting of Board of Directors (SS-1) and Secretarial Standard on General Meeting (SS-2), ICSI released the Secretarial Standard on Dividend (SS-3). The SS-3 is effective from 1st Day of January, 2018 for voluntary adoption by Companies.


  1. Dividend shall be paid out of-
  • the profits of the financial year for which such Dividend is sought to be declared or/and
  • the profits for any previous financial year(s) which remains undistributed after providing for depreciation in accordance with the provisions of the Act, or/and
  • From the money provided by the Central Government or a State Government in pursuance of a guarantee given by such Government for this purpose.

2. A company shall also not declare any Dividend,

  • unless carried over previous losses and depreciation not provided in the previous year(s) are set off against the profit of the company for the current year. Or/and if it has defaulted in-
  • Redemption of debentures or payment of interest thereon or creation of debenture redemption reserve,
  • Redemption of preference shares or creation of capital redemption reserve,
  • Payment of Dividend declared in the current or previous financial year(s), or
  • Repayment of any term loan to a bank or financial institution or interest thereon,

till such time the default is subsisting.

3. Dividend shall not be declared out of-

  • the Securities Premium Account or
  • the Capital Redemption Reserve Account or
  • the Revaluation Reserve Account or
  • the Amalgamation Reserve Account or
  • the profits on re-issue of forfeited shares, or
  • the profits earned prior to incorporation of the company.

4. where profits are inadequate or there are no profits then Dividend may be paid from free reserves subject to the fulfillment of following conditions-

  • The rate of Dividend declared by the company shall not exceed the average of the rates at which Dividend was declared by it in the three financial years immediately preceding the financial year of declaration of Dividend. This shall not be applicable where a company has not declared any Dividend in each of the three preceding financial years.
  • Total withdrawal from the accumulated profits shall not exceed one tenth of the sum of the paid up share capital and free reserves of the company as per the latest audited financial statements.
  • The amount so withdrawn shall first be utilised to set off the losses, if any, incurred in the financial year in which Dividend in respect of equity shares is proposed to be declared.
  • The balance of Free Reserves after such withdrawal shall not fall below 15% of the paid up share capital of the company as per the latest audited financial statements.


      5. Dividend shall be declared only at Annual General Meeting subject to the recommendation of the Board, made at a meeting of the Board.Members may declare a lower rate of Dividend than the rate recommended by the Board or may decide not to declare but have no power to increase the amount or rate of Dividend recommended by the Board

6. No Dividend shall be declared on equity shares for previous years in respect of which annual financial statements have already been adopted at the respective Annual General Meetings.

7. A company is prohibited to issue Bonus shares in lieu of Dividend.


       8. Dividend shall be paid-

  • in respect of shares held in electronic form, to those Members whose names appear as beneficial owners in the statement of beneficial ownership furnished by the Depository(ies) as on the record date fixed by the company for this purpose;
  • in respect of shares held in physical form, to those Members whose names appear in the company’s Register of Members after giving effect to all valid share transfers in physical form lodged with the company before the date of book closure or as on the record date, as the case may be.

9. Preference Shareholders shall be paid Dividend before Dividend is paid to the equity Shareholders of the company.

10. Arrears of Dividend on cumulative preference shares shall be paid before payment of any Dividend on equity shares. It is not applicable in case of non-cumulative preference shares

11. Dividend on equity shares shall be paid in accordance with the rights of the respective classes, if any, of such shares.

12. The amount of Dividend in respect of shares for which an instrument of transfer has been delivered to the company but which have not been registered for a valid reason shall be transferred to the Unpaid Dividend Account.

Members may authorise the company in writing to pay the Dividend to the transferee specified in the instrument of transfer and the company shall act upon such authorisation. However, where such instrument is not valid for any reason, the company shall not act upon such authorisation and intimate the concerned Member accordingly.

In case of shares which have not been transferred because the ownership thereof is in dispute, or where specific prohibitory orders have been passed by a court or statutory authority, Dividend should be kept in abeyance and be transferred to the Unpaid Dividend Account, as and when it becomes due.


         13. Dividend shall be deposited in a separate bank account within five days from the date of declaration and shall be paid within thirty days of declaration. The intervening holidays, if any, falling during such period shall be included.

The amount deposited in such bank account shall be utilised only for the payment of Dividend or for transfer to Unpaid Dividend Account/Investor Education and Protection Fund and for no other purpose.

14. Dividend shall be paid in cash/cheque/dividend warrant and not in kind.

15. Initial validity of the Dividend cheque or warrant shall be for three months.

16. A duplicate Dividend cheque or warrant shall be issued only after obtaining requisite indemnity/ declaration from the concerned Member and after ascertaining the encashment status of the original Dividend cheque or warrant.

17. The Dividend cheque or warrant shall be accompanied by a statement in writing showing the amount of Dividend paid, Folio no./DP ID and Client ID nos., number of shares held by the concerned Member as on the record date, amount paid up on each share and the financial year to which the Dividend pertains.

18. Unless the Articles provide otherwise, Dividend shall be paid proportionately on the paid-up value of shares.


         19. The amount of Dividend which remains unpaid or unclaimed after thirty days from the date of its declaration shall be transferred to a special bank account titled as ‘Unpaid Dividend Account’ to be opened by the company in that behalf with any scheduled bank. Such transfer shall be made within seven days from the date of expiry of the thirty days period from the date of declaration of Dividend.

20. Any amount in the Unpaid Dividend Account of the company which remains unpaid or unclaimed for a period of seven years from the date of transfer of such amount to the Unpaid Dividend Account, along with interest accrued, if any, shall be transferred to the Investor Education and Protection Fund.

21. Before transferring any unclaimed or unpaid Dividend to the Investor Education and Protection Fund, the company shall give an individual intimation to the Members in respect of whom such unclaimed Dividend is being transferred, at least three months before the due date of such transfer.

22. Any interest earned on the Unpaid Dividend Account shall also be transferred to the Investor Education and Protection Fund.


          23. Interim Dividend, if declared, shall be paid out of-

  • The surplus in the profit & loss account and/or
  • The profits of the financial year in which such Dividend issought to be declared.

24. The Board of Directors of a company may declare InterimDividend during any financial year or at any time during the period from closure of financial year till holding ofthe Annual General Meeting.

No Interim dividend shall be declared/paid out where profits are inadequate or no profits

Interim Dividend shall be declared at a meeting of the Board. Approval of Members is notrequired for declaration of Interim Dividend

All the provision which are applicable to dividend (which is declared by Shareholders) shall mutatis mutandis apply to Interim Dividend.


            25. Dividend, once declared, becomes a debt and shall not be revoked.


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