Contradiction in sec 123 payment of dividend with sec 63 of companies act 2013

Question BankCategory: Law & AuditContradiction in sec 123 payment of dividend with sec 63 of companies act 2013
Mukul asked 3 years ago

TO Ajay Maan sir
As per section 63 of comapnies act 2013
Bonus share can not issue in lieu of dividend but As per first proviso to 123(5) issue of Bonus share or payment of bonus call by capitalizing the reserve is permissible? will you please elaborate it and resolve the confusion…?

2 Answers
Aditya Kumar answered 3 years ago

Dear Mukul,

There is no contradiction between sec 63 and 123(5) of companies Act 2013. These section rather provide clarification for each other:
Sec 63 deals exclusively with bonus shares and provides that bonus shares can be issued out of :

  • Free Reserves
  • Securities Premium Account
  • Capital Redemption Reserve

bonus shares can not be issued out of :

  • Assets Revaluation Reserve and
  • bonus shares cannot be issued in lieu of dividend. It means that bonus shares cannot replace dividend (bonus shares cannot fit in shoe of dividend) In other words, company can not declare that this year we are issuing bonus shares as dividend. Because dividend can only be given in cash and cannot be given kind.

As per section 123(5) company can pay dividend only to:

  • Registered shareholder or
  • on his order or
  • to his banker

It further provides that dividend can only be paid in cash and cannot be paid in kind.
First proviso of section 123(5) clarifies that sec 123(5) will not prohibit a company from issuing bonus shares by capitalizing profits or reserves or making partly paid up shares as fully paid up by capitalizing profits or reserves.  This proviso is only a clarification that 123(5) does not restrict capitalization of profits or reserves. But this proviso does not allow issuing bonus in lieu of dividend. For Dividend it is clearly mentioned in section 123(5) that dividend can only be paid in cash and not in kind.
Hence section 63 and 123(5) are not contradictory to each other.

I hope, you find your answer.


admin Staff answered 1 year ago

Rightly replied by Mr. Aditya Kumar

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