Dividend Waiver by Shareholders

[The following guest post is contributed by Pavit Singh Kochar, a legal associate
(corporate) with KNM & Partners Law Offices, New Delhi]
term “dividend” has been defined under section 2(35) of the Companies Act, 2013
(“Act”),  and it includes interim dividend.   
is a return on the investment of shareholders in companies payable for a
financial year after the final accounts are settled and the amount of
distributable profits are available. Dividend is payable by a public/private
company only when the balance sheet and profit and loss account are presented
to the shareholders at the annual general meeting (“AGM”), and the shareholders after a consideration of the amount
recommended by the directors approve the same or such lesser amount as may
appear to them to be  reasonable and
proper. It is thus the prerogative of the board of directors to recommend the
amount of dividend to be distributed and the right of the shareholders at the
AGM to approve the recommended rate of dividend or lower the same, but in no
case increase the amount. There may be situations when the board of directors
pay dividend at their discretion where the company’s profits warrant such
payment before the holding of the AGM. The former concept is called “final
dividend” and latter as “interim dividend”.
As a
statutory obligation, no dividend can be declared or paid by a company except
out of the profits of the company for that year arrived at after providing for
depreciation in accordance with the provisions of the Act or out of the profits
of the company for any previous financial year(s) arrived at after providing
distinction between interim and final dividend is that unlike interim dividend,
a final dividend once declared by the company is a debt and creates an
enforceable obligation. A mere resolution declaring an interim dividend does
not create any liability and may be rescinded at any time before actual
Right to waive dividend by shareholders
may be situations when a company would like to distribute profits to its
shareholders in the form of dividends and shareholders of the company would
like to waive their right of share in the company profits. Dividend waivers may
be exercised by the shareholders to be remunerated via large dividends in
successive years or the waived dividends can be utilized in day-to-day affairs
of the company for the ultimate benefit of the shareholders. Presently, there
is no legislation in India which deals with such a scenario. However, certain
companies like Sun Pharmaceutical
Industries Limited
(“Sun Pharma”)
have exercised the option of dividend waivers. The form of communication for
waiving right to receive dividend by Sun
is available here.
dividend waiver is considered to be a gratuitous act and should be executed
without in return for anything. The Articles of Association of the company must
contain a clause in regard to this where the shareholder has the right to waive
the right to receive dividend, either final or interim, to which it is
entitled, on some or all the shares held in the company. Now, the question
arises as to when can a shareholder exercise his right to waive dividend in
case of final or interim dividends.  
In the
case of interim dividend, right to claim dividend will only arise once it has
been declared by the board of directors of the company. Normally the directors
have authority to pay an interim dividend without reference to the
shareholders. If the directors resolve to pay an interim dividend, that
resolution gives no rights to the shareholders. An interim dividend is of no
effect until the money is actually paid to the shareholders.  Hence, shareholders of the company can waive
their right to receive dividend once the same is declared by the company. In
case of final dividend, board of directors recommend the payment of dividend
after complying with the statutory provisions, and the same is then approved by
the shareholders of the company at the AGM. Hence, shareholders of the company
can waive their right to receive dividend once the same is proposed by the board
of directors of the company but before it is declared. The difference between the
two waivers exercised at different point of time is because in case of
unclaimed interim dividend, which has been declared, creates no debt or
liability upon the company but such is not the case when it comes to declared
unclaimed final dividend. An important point to note is that the dividend
waiver must be formally executed and signed by all the shareholders who wish to
waive their share of dividend and waiver provisions should have mention in the
Articles of Association of the company for shareholders who want to waive the
right to receive dividends in respect of any financial year as mentioned above.
– Pavit
Singh Kochar

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.


  • i dont agree with your post….it is misleading…..so what happens in a scenario where an interim dividend has been declared & then the shareholders waive their right & then subsequently the board decides to rescind the payment of interim dividend ?……if the board has the power to eventually rescind the dividend (even after it has been declared) then it is pointless for a shareholder to even apply for waiver since his need to apply for waiver will be pointless of the board finally rescinds the dividend payment ?

  • The theoretical position on subject of shareholders’ waiver of dividend, -the interim and final dividend, -as is noted, has been fairly covered; and that is no different from more or less the finally settled legal position for taxation of dividend income of either type.
    In the present context, the recent report on an event of a different complexion, being dividend skipping by the invested company, makes for a stray departure:
    Shareholders miffed at missed dividend at Tata Motors – The …
    Shareholders’ grouse:
    “Another shareholder remarked, "In your first year (Mistry took over as Tata Motors chairman in 2012) you paid Rs 4 a share as dividend, in the second year it was halved to Rs 2 and in the third year, you are giving zero dividend, even as you came to us many times to get permission to hike executive pay."

    Even so, the reply given for on behalf of the company, it is personally felt, cannot be faulted to be without substance or bereft of sound logic.

  • @ Anonymous On the point of objection raised,- the law envisages that to attract tax, 'dividend' must have been made "unconditionally available". It is worth reading the series of case law in which the said concept may be found to have been elaborately dealt with, the related issues settled at the end of a long-lasting battle of wits for decades.

  • @Anonymous: As I discussed in my post, the interim dividend can be rescinded by the Board of Directors at any time before payment and hence creates no obligation to pay the same unlike in final dividend. The shareholders can waive the interim dividend only when the interim dividend has been declared by the company. If you refer to the form of communication for waiving right to receive dividend by Sun Pharma, you would realize that the waiver is for interim dividend post declaration. Hence, the power of board to rescind the dividend even after it is declared is only in the case of interim dividend because an interim dividend does not become due and payable until it is actually paid. In regard to this, I would request you to refer to the case of Punjab National Bank v. Union of India (1986) 59 Com Cases 35 (Delhi) where the Hon’ble Court held that the declaration by the directors of an intended dividend to be paid at some future date may be rescinded before that date arrives.

  • In board meeting directors decide not to give dividend and at AGM after discussion with shareholders eventually board propose to give dividend,Can dividend be propose and declare at AGM simultaneously??

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