The Board’s Power
Section 123(3) permits the board to declare interim dividend during any financial year or at any time during the period from the closure of the financial year until the AGM. The power is exercisable by the board, not the shareholders, subject to the articles of association. If the articles restrict interim dividend, the board cannot override the restriction; the articles must be amended first.
The Loss-Year Cap
Where the company has incurred a loss in the current financial year up to the end of the quarter immediately preceding the date of declaration, the interim dividend rate cannot exceed the average of the rates declared in the three immediately preceding financial years. The cap is computed quarter by quarter, and the board should record the computation in the minutes.
The Payment and Account Mechanics
Section 123(4) requires the interim dividend amount to be deposited in a separate bank account within five days from the date of declaration. The payment must be made in cash to the registered shareholder or the shareholder’s order or banker. The thirty-day payment timeline applies, and a default attracts Section 127.
The Board Minute
The board minute should record: the articles provision authorising interim dividend; the profit and loss computation for the relevant period; the loss-year cap computation where applicable; the rate declared; the record date; the payment date; and the separate bank account details. A minute that records only the rate without the computation is an incomplete record of the board’s decision.
The Distinction from Final Dividend
Interim dividend is declared by the board; final dividend is recommended by the board and declared by the shareholders at the AGM. The shareholders cannot increase the rate recommended by the board, though they may decline it. A company that treats an interim dividend as a final dividend for accounting or disclosure purposes may misstate the approval chain.
Call to Action: For interim dividend documentation, articles review, or loss-year cap computation, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.