2.2       Query

Treatment of unclaimed dividends by a Government Company

1.A company registered in the year 1947, became Government company in terms of Section 617 of the Companies Act, 1956, in the year 1973. The company declared dividends from time to time upto 1971-72 and thereafter no dividends were declared. An amount of Rs. 10,256 has remained unclaimed since that year. As per the requirements of Schedule VI to the Companies Act, this amount is being disclosed every year. The company being a Government Company, it is exempted from the provisions of Section 205 A of the Act.

2.As no shareholder claimed dividend since 1973, the management of the company decided to transfer this amount to General Reserve after approval from the Board. The querist has expressed the view that since the amount has been disclosed in the balance sheet of the company every year, it amounts to acknowledgement of debt and therefore it does not become time barred.

3.The opinion of the Expert Advisory Committee has been sought whether (i) the management’s decision to transfer the unclaimed dividends to General Reserve is correct, (ii) if not, is there any alternative under which this amount loses its character of unclaimed dividend.

                                                       Opinion                                                   September 20,1984

1.The Committee notes the requirements of Section 205 A of the Companies Act, 1956,the relevant extracts of which are reproduced below:

“(1)Where, after the commencement of the Companies (Amendment) Act, 1974, a dividend has been declared by a company but has not been paid, or the warrant in respect thereof has not been posted within forty-two days from the date of the declaration, to any shareholder entitled to the payment of the dividend, the company shall within seven days from the date expiry of the said period of forty-two days, transfer the total amount of dividend which remains unpaid or in relation to which no dividend warrant has been posted within the said period of forty two days, to a special account to be opened by the company in that behalf in any scheduled bank, to be called  “Unpaid Dividend Account of ……….. Company Limited Company (Private) Limited.”

“(2)Where the whole or any part of any dividend declared by a company before the commencement of the Companies (Amendment) Act, 1974, remains unpaid at such commencement, the company shall, within a period of six months from such commencement, transfer such unpaid amount to the account referred to in subsection (1).”

“(5)Any money transferred to the unpaid dividend account of a company in pursuance of this section which remains unpaid or unclaimed for a period of three years from the date of such transfer, shall be transferred by the company to the general revenue account of the Central Government but a claim to any money so transferred to the general revenue account may be preferred to the Central Government by the person to whom the money is due and shall be dealt with as if such transfer to the general revenue account had not been made, the order, if any, for payment of the claim being treated as an order for refund of revenue.’’

2.The Committee notes that Section 205A was inserted by the Companies (Amendment) Act (XLI of 1974) which came into force on 1st February, 1975. The Committee also notes that Notification of the Central Government (No. GSR 231) exempting Government Companies from the requirements of the aforesaid section was issued on 31st January, 1978 and came into force immediately.

3.The company was required to deposit the amount in respect of unclaimed dividends to a special bank account as per the provisions of sub-section (2) of the aforesaid section, within six months of the commencement of the Companies (Amendment) Act, 1974 (i.e., within six months of 1st February, 1975). Since the Notification exempting the Government Companies came into force only on 31.1.1978, the company was not exempt from the requirements of the said sub-section. However, the Committee notes that the querist has not informed whether the company has complied with this requirement.

4.The Committee further notes that sub-section 5 of Section 205A requires that if the amount transferred to the special bank amount remains unpaid or unclaimed for a period of three years of such transfer, the amount should be transferred to the general revenue account of the Central Government. It may be noted that three years are to be counted from the date of transfer of the unpaid dividends to the special bank account. In the present case, however, the Committee is of the view that the date of transfer is not relevant for the purpose of this sub-section since three years from the commencement of the Companies (Amendment) Act, i.e., 1st February, 1975, were completed on 1st February, 1978 whereas the Notification exempting the Government Companies came into force on 31st January, 1978. Therefore, the company, being a Government Company, is exempt from the requirements of this sub-section. In view of this, whether the amount on account of unclaimed dividends could be transferred to general reserve would depend upon whether the Articles of Association of the Company permit such a transfer. In case there is no specific clause on this matter in the Articles, whether the said transfers to general reserve could be made has to be determined on the basis of the General Law of Limitations. The Committee however has attempted to interpret the Law of Limitations, in view of Rule 2 of the Advisory Service Rules according to which the Expert Advisory Committee is prohibited from interpreting various enactments.

8.On the basis of the above, the opinion of the Committee, on the issues raised by the querist, is as below:

(i)  The decision of the management to transfer the amount of unclaimed dividend to general reserve is correct, provided, its Articles of Association specifically permit such a transfer. In the absence of such specific permission, whether the decision of the management is correct would depend upon whether the general Law of Limitations permits such a transfer. The Committee has refrained from interpreting the Law of Limitations in view of the specific prohibition to this effect in Rule 2 of the Advisory Service Rules.

(ii) Whether the amount of unpaid dividends loses its character of unclaimed dividends would be determined on the basis of (i) above.

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