Section 123 — Declaration of dividend

(1) No dividend shall be declared or paid by a company for any
financial year except—
(a) out of the profits of the company for that year arrived at after providing for depreciation in
accordance with the provisions of sub-section (2), or out of the profits of the company for any previous
financial year or years arrived at after providing for depreciation in accordance with the provisions of
that sub-section and remaining undistributed, or out of 3[both:]

1. The words and figures “within the time as specified, under section 403” omitted by Act 1 of 2018, s. 31 (w.e.f. 7-5-2018).
2. Subs. by Act 22 of 2019, s. 19, for sub-section (3) (w.e.f. 2-11-2018).
3. Subs. by Act 1 of 2018, s. 32, for “both; or” (w.e.f. 9-2-2018).

1[Provided that in computing profits any amount representing unrealised gains, notional gains or
revaluation of assets and any change in carrying amount of an asset or of a liability on measurement of the
asset or the liability at fair value shall be excluded; or]
(b) out of money provided by the Central Government or a State Government for the payment of
dividend by the company in pursuance of a guarantee given by that Government:
Provided that a company may, before the declaration of any divid end in any financial year, transfer
such percentage of its profits for that financial year as it may consider appropriate to the reserves of the
company:
Provided further that where, owing to inadequacy or absence of profits in any financial year, any
company proposes to declare dividend out of the accumulated profits earned by it in previous years and
2[transferred by the company to the free reserves], such declaration of dividend shall not be made except in
accordance with such rules as may be prescribed in this behalf:
Provided also that no dividend shall be declared or paid by a company from its reserves other than free
reserves:
3[Provided also that no company shall declare dividend unless carried over previous losses and
depreciation not provided in previous year or years are set off against profit of the company for the current
year.]
(2) For the purposes of clause (a) of sub-section (1), depreciation shall be provided in accordance with
the provisions of Schedule II.
4[(3) The Board of Directors of a company may declare interim dividend during any financial year or
at any time during the period from closure of financial year till holding of the annual general meeting out
of the surplus in the profit and loss account or out of profits of the financial year for which such interim
dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding
the date of declaration of the interim dividend:
Provided that in case the company has incurred loss during the curren t financial year up to the end of
the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall
not be declared at a rate higher than the average dividends declared by the company during immediately
preceding three financial years.]
(4) The amount of the dividend, including interim dividend, shall be deposited in a scheduled bank in
a separate account within five days from the date of declaration of such dividend.
(5) No dividend shall be paid by a company in res pect of any share therein except to the registered
shareholder of such share or to his order or to his banker and shall not be payable except in cash:
Provided that nothing in this sub -section shall be deemed to prohibit the capitalisation of profits or
reserves of a company for the purpose of issuing fully paid -up bonus shares or paying up any amount for
the time being unpaid on any shares held by the members of the company:
Provided further that any dividend payable in cash may be paid by cheque or warran t or in any
electronic mode to the shareholder entitled to the payment of the dividend.
(6) A company which fails to comply with the provisions of sections 73 and 74 shall not, so long as