A company declares a dividend, most shareholders collect it, and a handful of old untraceable folios never do. The instinct is to leave that money parked indefinitely. The law will not allow it: unpaid amounts move to a special account within days, and after seven years the unclaimed dividend — and the shares it relates to — go to a government fund. Shareholders who stop paying attention can lose their holdings entirely.
A declared dividend must be paid within 30 days, unpaid amounts moved to the Unpaid Dividend Account within 7 days of that, and anything still unclaimed after 7 years transfers to the IEPF along with the underlying shares.
The bottom line
Source: dividend only out of profits, current or past and after depreciation. Never from revaluation or notional gains.
Pay: within 30 days of declaration, with the amount deposited into a separate account within 5 days.
Unpaid to IEPF: unpaid amounts move to the Unpaid Dividend Account within 7 days, and after 7 years unclaimed they and the related shares transfer to the Investor Education and Protection Fund.
Where a dividend can come from
Section 123(1) permits payment only from legitimate profits: the current year's profits after providing for depreciation, undistributed profits of previous years, or both — or money provided by a government for a guarantee.
It cannot be paid out of revaluation reserves, unrealised gains or notional gains. Where profits are inadequate, a company may dip into free reserves, but only within the limits set by Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014.
Interim and final dividends
A final dividend is recommended by the Board and declared by shareholders by ordinary resolution at the AGM, and cannot exceed the Board's recommendation. Shareholders can approve less; they cannot approve more.
An interim dividend is declared by the Board during the year, or between year end and the AGM, out of current surplus. Section 123(3) adds a guardrail: where the company has made a loss in the current year up to the preceding quarter, an interim dividend cannot be declared at a rate higher than the average of the last three years' dividends.
The five-day and thirty-day rules
Under Section 123(4), the declared dividend must be deposited in a separate scheduled bank account within 5 days of declaration.
Payment to shareholders must follow within 30 days. Miss that and Section 127 bites hard: every director knowingly party to the default faces imprisonment of up to 2 years and a fine, and the company owes interest at 18% a year.
That combination — personal imprisonment exposure on a payment deadline — is why the 30-day window gets treated seriously in a way most filing deadlines are not.
The Unpaid Dividend Account
Where a dividend stays unpaid or unclaimed for 30 days, Section 124(1) requires the company to transfer the unpaid amount to a special Unpaid Dividend Account in a scheduled bank within 7 days of that 30-day expiry.
Within 90 days of that transfer, Section 124(2) requires the company to publish a statement of unpaid dividends on its website — names, last known addresses, amounts — so shareholders can find and claim what is theirs.
The seven-year transfer, and the shares
Money in the Unpaid Dividend Account that stays unclaimed for 7 years transfers, with any interest, to the Investor Education and Protection Fund under Sections 124(5) and 125.
Section 124(6) goes further, and this is the part that costs shareholders real money. Shares on which dividends have gone unpaid or unclaimed for 7 consecutive years are also transferred to the IEPF.
There is one reprieve. If the dividend is claimed even once during those seven years, the shares are not transferred. A single claim resets the position, which makes chasing dormant shareholders worth the effort.
Claiming back from the IEPF
Transfer to the IEPF is custody, not forfeiture. A shareholder or legal heir can reclaim both the dividend and the shares by filing Form IEPF-5 online at iepf.gov.in, then sending the signed form and documents to the company for verification before the IEPF Authority refunds, under the IEPF Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.
It is recoverable, and the process is slow and paperwork-heavy. Far better not to let it get there.
What non-compliance costs
Default under Section 124(7) makes the company liable to ₹1 lakh plus ₹500 a day, up to ₹10 lakh, and every officer in default to ₹25,000 plus ₹100 a day, up to ₹2 lakh.
Failure to pay a declared dividend within 30 days is the harsher one, under Section 127: imprisonment of up to 2 years for directors knowingly in default, plus 18% interest.
A worked example
A shareholder holds shares but never updates her bank details, so the dividends declared each year go uncollected.
Each year's unpaid dividend moves to the Unpaid Dividend Account within 7 days of the 30-day window closing. Seven years on, the first year's unclaimed dividend transfers to the IEPF — and because no dividend on those shares has been claimed for seven straight years, the shares themselves transfer too.
To recover them she, or her heirs, must file IEPF-5 and work through the verification process. Nothing was confiscated unfairly. The deadlines simply ran their course while nobody was watching.
Common mistakes
- Paying a dividend from revaluation or notional gains. Only real profits qualify.
- Missing the 30-day payment window, which carries director imprisonment and 18% interest.
- Leaving unpaid amounts in the operating account instead of moving them within 7 days.
- Not publishing the unpaid dividend statement on the website within 90 days.
- Ignoring the seven-year share transfer. Warn long-dormant shareholders before their holdings leave.
A working routine
- Confirm the dividend is sourced only from eligible profits.
- Declare correctly — final by shareholders at the AGM, interim by the Board within its limits.
- Deposit into a separate account within 5 days, and pay shareholders within 30.
- Move any unpaid amount to the Unpaid Dividend Account within 7 days of the 30-day expiry.
- Publish the unpaid dividend statement on the website within 90 days.
- Track the seven-year clock, transfer unclaimed dividends and shares to the IEPF, and help shareholders claim through IEPF-5.
Frequently asked questions
Can a dividend be paid from revaluation reserves? No. Dividends come only from profits, current or past and after depreciation, never from revaluation or notional gains.
Within how long must a declared dividend be paid? Within 30 days of declaration. Otherwise Section 127 applies, including director imprisonment, along with 18% interest.
When does unpaid dividend go to the IEPF? After 7 years unclaimed in the Unpaid Dividend Account. The related shares transfer after 7 consecutive years without a claim.
Can shares transferred to the IEPF be recovered? Yes, by filing Form IEPF-5 online and completing the company's verification and the Authority's refund process.
What is the penalty for breaching Section 124? ₹1 lakh on the company plus ₹500 a day up to ₹10 lakh, and ₹25,000 on each officer in default plus ₹100 a day up to ₹2 lakh.
Does claiming one dividend protect the shares? Yes. A claim during the seven-year period stops the shares from transferring to the IEPF.
Primary sources
- Sections 123, 124, 125 and 127, Companies Act, 2013
- Companies (Declaration and Payment of Dividend) Rules, 2014
- IEPF Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, and Form IEPF-5