Unit 4: Dividends, accounts, audit & winding up

Dividend is the portion of profits distributed to shareholders; it includes interim dividend.

• Transfer to reserves before dividend is optional (any percentage).
• Interim dividend: declared by the board during the year out of current profits or surplus; if the company incurred a loss in the current period, rate limited to the average of the last three years.
• Final dividend: recommended by the board and declared by shareholders at the AGM (cannot exceed the board's recommendation).
• Deposited in a separate bank account within 5 days of declaration; paid within 30 days (Section 127 — failure is punishable).
• Unpaid dividend: transferred within 7 days after 30 days to an Unpaid Dividend Account; if unclaimed for 7 years, transferred to the Investor Education and Protection Fund (IEPF) along with the shares.
• No dividend on equity shares if the company fails to comply with acceptance or repayment of deposits.
• Dividend is taxable in the hands of shareholders (DDT abolished from 2020).

• Books of account (Section 128): kept at the registered office on accrual basis and double-entry system; may be kept in electronic form (with daily back-up on servers in India); preserved for 8 years.
• Financial statements (Section 2(40)): balance sheet, profit and loss account (income and expenditure account), cash flow statement (not mandatory for OPC, small and dormant companies), statement of changes in equity (if applicable), notes — in the format of Schedule III.
• Must give a true and fair view and comply with accounting standards (AS / Ind AS).
• Approved by the board, signed and laid before the AGM; filed with the ROC within 30 days of the AGM (AOC-4); annual return within 60 days (MGT-7).
• Board's report (Section 134): state of affairs, dividend, reserves, directors' responsibility statement, CSR, risk management.
• Consolidated financial statements required for companies with subsidiaries, associates or joint ventures.

Rotation of auditors (Section 139(2))

• Applies to listed companies and specified classes (unlisted public companies with paid-up capital ₹10 crore+, private companies with paid-up capital ₹50 crore+, companies with public borrowings ₹50 crore+).
• An individual auditor — not more than one term of 5 years; an audit firm — not more than two terms of 5 years (10 years).
• Cooling-off period of 5 years before re-appointment.

Qualifications, rights and duties

• Only a chartered accountant or a firm of CAs (majority partners CAs) can be appointed; disqualifications include body corporates, officers/employees of the company, those indebted beyond limits, relatives holding securities.
• Rights: access to books and vouchers at all times, information and explanations, attend general meetings, receive notices.
• Duties: report to members whether accounts give a true and fair view, adequacy of internal financial controls, comply with auditing standards, report fraud to the Central Government (Section 143(12)), comply with CARO (Companies Auditor's Report Order).
• Removal before term: special resolution + prior Central Government approval; auditor has a right to be heard.
• Cost audit (Section 148): for specified industries by a cost accountant.
• Internal audit (Section 138): for listed and specified companies.

• Required for every listed company, public companies with paid-up capital ₹50 crore+ or turnover ₹250 crore+, and companies with outstanding loans/borrowings ₹100 crore+.
• Conducted by a Company Secretary in practice; report in Form MR-3 annexed to the board's report.
• Checks compliance with the Companies Act, SEBI regulations, FEMA, Depositories Act, labour and other applicable laws.

Winding up is the process of ending the life of a company — realising assets, paying debts and distributing surplus; dissolution is the final legal end.

• Inability to pay debts is now handled under the IBC through the Corporate Insolvency Resolution Process (CIRP) before the NCLT.
• Company liquidator takes custody of assets, settles claims in the order of priority, and the Tribunal passes the dissolution order.

NCLT and NCLAT

• NCLT (Section 408): constituted on 1 June 2016; benches across India (Chandigarh bench covers Punjab); hears oppression and mismanagement, compromises and amalgamations, reduction of capital, winding up, refusal of transfer, class action suits, and is the Adjudicating Authority under IBC.
• NCLAT (Section 410): hears appeals against NCLT orders within 45 days; also appeals from the Competition Commission and IBBI.
• Appeals from NCLAT to the Supreme Court within 60 days on questions of law.