Secretarial Standards on Dividend SS-3 By CS Dimple Chauhan


After implementation of Secretarial Standards for meetings of Board of Directors (SS-1) and (SS-2) Secretarial Standards for General Meetings. ICSI released the Secretarial Standards for Dividend (SS-3) at its golden jubilee year. The SS-3 will be effective from January 1, 2018, for voluntary adoption by companies.

In this article, we shall discuss the Introduction, Scope and Ascertainment of the amount available for payment/distribution as dividend out of profit part of SS-3.


  • The term dividend refers to the return on an investment made by the shareholders in companies. It is different from the term return on borrowed capital which is in the form of interest.
  • As per Companies Act, Dividend means both Final Dividend and Interim Dividend.
  • As per this standard capitalisation of profits from the bonus, shares are not the dividend.
  • This standard excludes Companies under section-8 of companies as they are prohibited from paying the dividend to its members.


  • the principles set relate to declaration and payment of dividend on equity as well as preference share capital.
  • These principles are equally applicable to final as well as interim dividend unless otherwise stated.
  • This standard shall not apply to a company limited with a guarantee not having a share capital and does not deal with Dividend that is declared by companies under liquidation.

Ascertainment of the amount available for payment/distribution as dividend:

The dividend can be paid:
  • out of profit
  • out of free reserve
Out of profit
The dividend shall be paid:
  • Out of profit with the financial year for which dividend is sought to be declared.
  • Out of profit of any previous financial year which remains undistributed after providing for depreciation.
  • out of money provided by the central government or state government or in pursuance of a guarantee given by such government.
The dividend shall not be declared unless carried over previous losses and depreciation not provided in the previous year are set off against the profits of the company for the current year.
The company may transfer the certain percentage of the amount out of its profit to its reserve before declaring the dividend.
The act requires a company to prepare a statement of profit and loss which should give a true and fair view of the profit or loss of the company for a financial year.
The profit and loss statement shall be prepared in accordance with the generally accepted accounting principles and applicable accounting standards.
Depreciation shall be computed according to the schedule II of books of accounts of the company.
A company shall not declare any dividend on its equity shares in case of non-compliance of the provision relating to acceptance of deposits under the act, till such time the deposit accepted have been repaid with interest in accordance with the terms and conditions of the agreement entered with the depositors.
A company shall also not declare any dividend if it has defaulted in:
  • Redemption of debenture or payment of interest thereon or creation of debenture redemption reserve.
  • Redemption of preference share or creation of capital redemption reserve.
  • Payment of dividend declared in the current or previous financial years.
  • Repayment of any term loan to a bank or financial institution or interest thereon till such time default is subsisting.
  • No dividend shall be declared by the company during the extended time granted by the tribunal or court for the repayment of above liabilities.
The dividend shall not be declared:
  • out of the security premium account or
  • the capital redemption reserve account or
  • revaluation reserve or amalgamation reserve or
  • out of profits on reissued of forfeited share or
  • out of profit earned prior to incorporation of the company
The interim dividend shall be declared and paid out of the surplus in the profit & loss account and/or out of profits of the financial year in which such dividend is sought to be declared.
The board of director of a company may declare interim dividend during any financial year or at any financial or at any time during the period from the closure of financial year till holding of the annual general meeting.
While declaring interim dividend the board shall consider the financial results for the period for which interim dividend is declared.
The financial result shall take into account:
  • Depreciation for the full year
  • Tax on profits of the company including tax for the full year.
  • Other anticipated losses for the financial year.
  • Dividend that would be required to be paid at the fixed rate on preference shares.
  • The losses incurred during the current financial year up to the end of the quarter.
The interim dividend shall not be declared at a rate higher than average dividend declared during the immediately preceding three financial years.
Where a company has issued equity shares with differential rights as to dividend, an interim dividend may, at the option of the board, be declared on all or any one or more of the classes of such shares in accordance with the term of the issue.
If the interim dividend is declared on only one class of equity shares, the board shall ensure that the profit as shown in financial results is adequate to meet the dividend that would have to be paid on the other classes of equity shares in accordance with the terms of issue.
When equity share with differential rights on voting only is issued no differentiation shall be made in the declaration of interim dividend on such shares unless the terms of issue provide otherwise.
ACS Dimple Chauhan

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