Shareholder Waive explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Two questions come up often in closely held companies: a promoter wants to give up a dividend so that others receive more, or a company wants to pay a dividend by handing over an asset. On the second, the Companies Act, 2013 is direct: dividend is payable in cash only. On the first, the Act has no section on waiver at all, so the answer has to be built from what the dividend sections do and do not say. This guide reads the Act in the Ministry's consolidated text (last updated 29 July 2022) and the Dividend Rules as consolidated in the Ministry's e-book, consulted on 3 October 2026; later amendments should be checked.
Dividend in kind: section 123(5) says no dividend is paid except to the registered shareholder (or to his order or banker) and "shall not be payable except in cash", with a proviso for capitalising profits or reserves to issue fully paid bonus shares or pay up unpaid amounts. SS-3 (recommendatory) says the same at paragraph 5.3. Waiver: the Act has no waiver section. Section 127's exceptions and section 51 and the articles must be read, and the terms of any waiver checked, before anyone relies on it. For tax, see our income-tax guides.
Dividend in kind
Section 123(5) says that no dividend shall be paid by a company in respect of any share except to the registered shareholder or to his order or to his banker, and that it shall not be payable except in cash. Two provisos follow:
- Nothing in the sub-section prohibits capitalising profits or reserves to issue fully paid-up bonus shares or to pay up any amount unpaid on shares held by members.
- Dividend payable in cash may be paid by cheque, warrant or any electronic mode.
So the company cannot discharge a declared dividend by transferring property or securities of another company; the two exceptions are capitalisation routes. Secretarial Standard 3 on Dividend states at paragraph 5.3 that dividend shall be paid in cash and not in kind. SS-3 is recommendatory (its own preface says adherence is recommendatory), unlike SS-1 and SS-2, which section 118(10) of the Act makes mandatory. The Act itself already carries the cash rule, so the Standard adds no new ground.
Bonus shares are a separate subject: see our guide on bonus shares FAQs. If you want a dividend structure checked against the Act and the articles, see our compliance advisory service.
Dividend rules to keep in view
- Source. Section 123(1) allows dividend only out of profits of the year or of earlier years remaining undistributed (after depreciation under Schedule II), or out of money provided by a Government for the purpose; and not from reserves other than the distributable ones defined in section 2(43). Earlier losses and unprovided depreciation must be set off first.
- Inadequate profits. Rule 3 of the Dividend Rules sets conditions for drawing on accumulated profits transferred to the reserves: the rate may not exceed the average of the three preceding years' rates, the amount drawn may not exceed one-tenth of the paid-up capital plus those reserves, losses of the year are set off first, and the balance of reserves may not fall below fifteen per cent of paid-up capital. Read the rule for the whole text.
- Deposit. Section 123(4): the amount is deposited in a separate account in a scheduled bank within five days of declaration.
- Proportion to amount paid-up. Section 51: if the articles authorise, dividends may be paid in proportion to the amount paid up on each share.
What section 127 covers
Section 127 punishes failure to pay or post the warrant within thirty days of declaration to a shareholder entitled to dividend: directors knowingly party to the default face imprisonment and a daily fine, and the company pays simple interest at eighteen per cent a year. Its proviso lists cases where no offence is deemed committed:
| Proviso | What it says |
|---|---|
| (a) | Dividend could not be paid by reason of the operation of any law |
| (b) | A shareholder gave directions on payment, they cannot be complied with, and that has been communicated to him |
| (c) | A dispute about the right to receive the dividend |
| (d) | The dividend has been lawfully adjusted against a sum due from the shareholder |
| (e) | Any other reason where the failure was not due to the company's default |
Can a shareholder waive?
The Act has no section on waiver of dividend, and neither does SS-3 in the paragraphs we have read. So:
- Declaration creates the entitlement. Once dividend is declared, section 127 speaks of "any shareholder entitled to the payment of the dividend", and sections 124 and 127 run from the date of declaration: payment or posting within thirty days, transfer of unclaimed amounts to the Unpaid Dividend Account within seven days after thirty days (section 124(1)).
- A waiver in advance of declaration is a matter between the shareholder and the company: it may be recorded as a letter to the Board before the Board recommends or declares. The text neither validates nor invalidates it; whether it works depends on the articles, the terms of the shares and how the waiver is worded.
- A waiver after declaration is harder to place. SS-3 (recommendatory) says at paragraph 7.1 that a dividend, once declared, becomes a debt and shall not be revoked, and at paragraph 2.2 that members at the annual general meeting may declare a lower rate than the Board recommended, or decide not to declare the dividend, but cannot increase it. The exceptions in section 127 protect directors only in the cases listed; (b) covers a shareholder's directions that cannot be complied with and (d) a lawful adjustment against a sum due. None says that a shareholder's wish to give up the money ends the company's duty to distribute.
- Equal treatment of the class. The Act pays dividend to shareholders entitled to it; if a waiver changes the proportion in which a class shares, the articles and the terms of the class decide whether that is permitted. State no rule either way.
Never describe a waiver as valid or invalid as a general rule. Check the articles, the share terms and the exact words of the waiver, and take advice.
Worked example (invented names)
Westline Industries Private Limited declares a dividend of Rs 5 per share on 1,00,000 equity shares, Rs 5,00,000 in all. One promoter, holding 40,000 shares, writes that she wants no dividend. If she gives up her share, Rs 2,00,000 (40,000 x 5) would not be paid to her; the other holders would still be entitled to their Rs 3,00,000 (60,000 x 5) at the declared rate. The company cannot simply pay her share to others unless the declaration, the articles and the share terms allow a different rate for her class. The safer course is to record her waiver before declaration, obtain advice on whether the articles allow different treatment, and deposit the dividend within five days of declaration (section 123(4)).
Common mistakes
- Paying a declared dividend by handing over goods or shares.
- Treating a promoter's letter after declaration as ending the company's duty to pay.
- Redistributing a waived share to other holders without checking the articles.
- Missing the five-day deposit and the thirty-day payment dates.
- Declaring from revaluation or notional gains.
Need help with a dividend decision?
We can read the articles and the share terms, prepare the Board and members' resolutions and record any waiver properly, so that the dividend is declared and paid in cash within the Act's dates. See our compliance advisory service.
Key takeaways
- Dividend is payable in cash only (section 123(5)); SS-3 para 5.3 repeats it and is recommendatory.
- The only non-cash capitalisation routes are bonus shares and paying up unpaid share amounts.
- The Act has no waiver section; section 127's exceptions do not turn a wish into a waiver.
- The articles and share terms decide who may receive what.
- Deposit within five days and pay within thirty.
Read next
- Dividend Under Companies Act 2013: Declaration, Interim and Final
- Companies (Declaration and Payment of Dividend) Rules, 2014
- Secretarial Standard on Dividend (SS-3)
- Bonus Shares FAQs
Disclaimer: Based on the Companies Act, 2013 in the Ministry of Corporate Affairs consolidated text (last updated 29 July 2022), the Rules as consolidated in the Ministry's e-book and the other official texts named in this article, as consulted on 3 October 2026. Later amendments, notifications, circulars, forms and fees should be checked. Formats are general drafts to be adapted to the company's articles and facts. This article is general information, not legal advice; check the official text before acting.