Q.Justify the following statement:
Unpaid dividends cannot be used by the company.

The statement is justified. Once dividend is declared, it becomes a debt owed to shareholders, so the company cannot treat unpaid or unclaimed dividend as its own money. The Companies Act, 2013 requires it to be kept in a separate Unpaid Dividend Account and, if still unclaimed after seven years, transferred to the IEPF.

After a dividend is declared and approved by the shareholders, it becomes a debt payable by the company to its members. Since the amount belongs to the shareholders, the company has no right to use it for its own business. The Companies Act, 2013 lays down a strict procedure:

• Transfer to a separate account: Any dividend that remains unpaid or unclaimed within 30 days of declaration must be transferred by the company within 7 days (i.e., within 37 days of declaration) to a special account called the Unpaid Dividend Account opened in a scheduled bank.
• Not available for company use: The money in this account is held in trust for the shareholders. The company cannot utilise it for its working capital or any other purpose.
• Interest for delay: If the company fails to transfer the amount in time, it must pay interest at 12% p.a. on the delayed amount, which belongs to the members. …