Section 127: Failure to Pay a Declared Dividend

Section 127 failure to pay dividend is the enforcement half of the Companies Act, 2013's dividend machinery. Section 123 governs where a dividend may come from. Section 127 governs what happens once it has been declared and the money does not reach the shareholder. The clock is thirty days from declaration, the company pays interest at eighteen per cent a year, and a director who is knowingly a party to the default is personally exposed.

What triggers section 127 failure to pay dividend liability?

The section has no sub-sections. It runs as one sentence, and it needs three facts to be true at once:

1. a dividend has been declared by the company
2. it has not been paid, or the warrant in respect of it has not been posted, within thirty days from the date of declaration
3. the person it has not reached is a shareholder entitled to the payment of that dividend

Posting the warrant is enough. The section is drafted around dispatch rather than receipt: its second limb asks whether the warrant has been posted within the thirty days, not whether it has arrived.

The section states the company's liability to that interest without naming the payee, so the text itself does not say to whom the interest runs.

What a director carries

A director of the company is punishable "if he is knowingly a party to the default", in the section's own words. Two things follow from that phrasing. The liability is not automatic on every member of the Board, and knowledge is part of the offence rather than a defence to it.

Where a director is knowingly a party, section 127 sets a custodial limb and a monetary limb for them, and a third consequence that falls on the company itself:

The daily fine has a floor and no ceiling stated in the section. A default that runs for months compounds in a way a flat figure would not.

The five cases where no offence is committed

The proviso to section 127 lists five situations in which no offence under the section is deemed to have been committed. They are the section's whole defensive surface:

• (a) where the dividend could not be paid by reason of the operation of any law
• (b) where a shareholder has given directions to the company regarding payment, those directions cannot be complied with, and that has been communicated to them
• (c) where there is a dispute regarding the right to receive the dividend
• (d) where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder
• (e) where, for any other reason, the failure to pay or to post the warrant was not due to any default on the part of the company

Clause (b) has a communication requirement built into it. The directions must be uncompliable and the company must have communicated that fact to the shareholder. Doing the first without the second leaves the company outside the proviso.

Clause (e) is the residual limb, and it is the one that carries most real cases: a failure that is not the company's default is not an offence, however long it lasts.

How section 127 sits with sections 123 and 124

The three sections run on one timeline from the date of declaration.

Section 127 and section 124 do not overlap in the way people expect. Section 124 is where the money goes when the shareholder does not claim it. Section 127 is what the company and its directors face when the money did not go out at all. A dividend can be lawfully sitting in an Unpaid Dividend Account and the company still be clean under section 127, because the failure was the shareholder's non-claim rather than the company's non-payment.

• Interim dividend vs final dividend covers section 123, including the profits a dividend may be declared out of and the loss-year cap on interim dividend.
• What is the Unpaid Dividend Account is the section 124 account that catches the unclaimed remainder.
• How to claim shares from IEPF covers what happens after seven years in that account.
• What is fraud under section 447 is the far heavier provision that sits behind knowing conduct elsewhere in the Act.
• Section 129 financial statements is where the profits a dividend is declared out of are reported.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.