Question

Study the following case/situation and express your opinion.

Sai Company Ltd. decides to pay interim dividend:

1. Is the Board justified to decide interim dividend of ₹ 5/- per share even though profits till date are insufficient?
2. Can the Board declare dividend out of free reserves?
3. Can the Board declare dividend out of Capital?

Answer 1

1. Since the profits earned up to the date of declaring the interim dividend are inadequate, the Board is not justified in declaring an interim dividend of ₹ 5 per share.
2. The Board of Directors is not permitted to declare an interim dividend from free reserves.
3. The Board of Directors is also not allowed to declare an interim dividend out of capital.