Secretarial Standard 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.
The Secretarial Standard on Dividend (SS-3) of the Institute of Company Secretaries of India sets out principles for declaring and paying dividend, from where the money may come to what happens to dividend nobody claims. Unlike SS-1 and SS-2, it is not made mandatory by the Act: its own preface says adherence is recommendatory. It is still the neatest checklist for a company secretary, and most of it rests on sections 123, 124 and 127 of the Companies Act, 2013. This guide explains the Standard in our own words from the ICSI text (effective 1 January 2018) and maps it to the Act as per the Ministry's consolidated text (last updated 29 July 2022); later amendments should be checked.
SS-3 says adherence is recommendatory. SS-1 and SS-2, by contrast, are mandatory under section 118(10). SS-3 applies to dividend on equity and preference shares of a going concern, final and interim, and not to a company limited by guarantee without share capital or to dividend declared by companies in liquidation. It says dividend must be paid out of profits (or, where permitted, out of distributable reserves), declared on the Board's recommendation, paid in cash within thirty days, and, once declared, not revoked. Unclaimed amounts follow the Unpaid Dividend Account route to the Investor Education and Protection Fund.
Status and scope
SS-3's introduction notes that "dividend" is defined inclusively in the Act, that capitalisation of profits in the form of bonus shares is not dividend for the Standard's purposes, and that a company licensed under section 8 is prohibited by its constitution from paying dividend. It records that the Act, the Securities Contracts (Regulation) Act, 1956 and the listing regulations also apply to listed companies, and that if the Standard becomes inconsistent with the Act the Act prevails.
For help applying it, see our compliance documentation service.
The Standard paragraph by paragraph
1. Amount available. Paragraph 1.1 says dividend is paid out of the year's profits or undistributed profits of earlier years after depreciation under Schedule II, or out of Government money provided under a guarantee for the purpose, and not until carried-over losses and unprovided depreciation are set off. Paragraph 1.1.2 bars dividend on equity shares while a deposit default continues, and also while the company is in default on debenture redemption or interest, preference share redemption, a declared dividend of the current or earlier years, or a bank or institution term loan. Paragraph 1.1.3 says no dividend out of the securities premium account, the capital redemption reserve, revaluation reserve, amalgamation reserve, profits on re-issue of forfeited shares or pre-incorporation profits. Paragraph 1.1.4 deals with interim dividend, to be paid out of the surplus in the profit and loss account or the year's profits; the Board looks at the period's results, with depreciation, tax and anticipated losses, and, if the company has lost money up to the previous quarter, the rate may not exceed the average of the preceding three years. Paragraph 1.2 allows a year with inadequate profits to draw on distributable reserves (the Act's section 2(43) reserves; the Standard uses the defined term) under conditions mirroring rule 3 of the Dividend Rules, and not for interim dividend.
2. Declaration. Dividend is declared only on the Board's recommendation (2.1), at the annual general meeting after the financial statements are adopted (2.2); members may declare a lower rate or none, but cannot increase it. No dividend on equity for earlier years whose accounts are adopted (2.3), though arrears on cumulative preference shares may be paid. Interim dividend is declared by the Board (2.4). Discount coupons are not deemed dividend (2.5) and bonus shares cannot replace it (2.6).
3. Entitlement. Payment is to the registered holder (3.1), with the record date or book closure applying to demat and physical holders; preference shareholders are paid before equity (3.2) and cumulative arrears before equity (3.3); classes follow their terms (3.4).
4. Abeyance. Dividend on shares with a lodged but unregistered transfer, or with a ownership dispute or prohibitory order, goes to the Unpaid Dividend Account (4.1).
5. Payment. Deposit into a separate bank account within five days and payment within thirty days (5.1); cash, not kind (5.3); cheque or warrant validity of three months (5.4); duplicates only after indemnity and checking encashment (5.5); a statement with each payment (5.6); pro rata to the amount paid up (5.7); adjustment of calls in arrears and sums due (5.8); no interest unless default, with the exceptions in 5.9 that match section 127.
6. Unpaid dividend. Transfer to the Unpaid Dividend Account within seven days after the thirty days (6.1), a statement of names and amounts within ninety days, and transfer to the Investor Education and Protection Fund after seven years, with the related statements and an individual intimation three months before the transfer date (6.2, 6.3); interest earned goes too (6.4); shares go to the Fund where dividend is unclaimed for seven consecutive years, again after three months' individual notice and a newspaper notice (6.5).
7. Revocation. Dividend, once declared, becomes a debt and shall not be revoked (7.1).
8. Preservation. Paid cheques, warrants and dividend registers are kept for eight years (8.1).
9. Disclosure. Notes to accounts, the balance sheet's unpaid dividend amount, the Board's report and the annual report carry the figures listed (9.1 to 9.4).
10. Listed companies. Additional compliances in Annexure A (stock exchange intimations, record date, dividend distribution policy and others).
SS-3 and the Act side by side
| SS-3 paragraph | Subject | Act section it rests on |
|---|---|---|
| 1.1 | Profits, depreciation, losses set off | s.123(1), s.123(2) |
| 1.1.2 | No dividend while deposit default continues | s.123(6) |
| 1.1.4 | Interim dividend and the three-year rate rule | s.123(3) |
| 1.2 | Distributable reserves in inadequate years | s.123(1) provisos; Dividend Rules rule 3 |
| 3.1, 5.3 | Registered holder; cash only | s.123(5) |
| 5.1 | Separate account within five days | s.123(4) |
| 5.7 | Proportion to amount paid up | s.51 |
| 5.9 | Interest and the cases of no default | s.127 |
| 6.1 | Unpaid Dividend Account | s.124(1) to (4) |
| 6.2, 6.5 | Transfer of money and shares to the Fund | s.124(5), (6) |
| 2.1 to 2.4, 4, 7, 8, 9 | Declaration mechanics, abeyance, no revocation, preservation, disclosure | The Standard's own principles and the Act's general provisions; check the articles |
Paragraph 1.1.2's bar on dividend during defaults other than deposits is the Standard's own rule; the Act's section 123(6) prints only the deposits case.
Worked example (invented names)
Crescent Chemicals Limited recommends a final dividend of Rs 2 per share on 5,00,000 shares at its Board meeting; the AGM adopts the accounts and declares Rs 1.50 per share instead (members may lower the rate under paragraph 2.2). Total = 5,00,000 x 1.50 = Rs 7,50,000. Under paragraph 5.1 and section 123(4), the amount is deposited in a separate account within five days; payment is due within thirty days of declaration; any amount unpaid after the thirty days is moved to the Unpaid Dividend Account within seven days after that.
Why "recommendatory" matters
Because SS-3 is recommendatory, a departure from it is not itself a breach of section 118(10). But the Act's own requirements, such as cash-only payment, five-day deposit and the Unpaid Dividend Account, remain binding. Treat SS-3 as the minimum practice a careful secretary follows and keep the Act's text open beside it.
Common mistakes
- Treating SS-3 as optional for matters the Act itself fixes.
- Declaring interim dividend out of reserves in a loss year (paragraph 1.2.2).
- Letting the members increase the Board's recommended rate.
- Missing the individual notices before the transfer to the Fund.
- Forgetting the eight-year preservation of warrants and registers.
Need help with dividend compliance?
We can prepare the Board recommendation, the members' resolution, the payment records and the unpaid dividend statements, and check each against the Act and SS-3. See our compliance documentation service.
Key takeaways
- SS-3 is recommendatory; SS-1 and SS-2 are mandatory under section 118(10).
- Dividend comes from profits, or distributable reserves only on the conditions printed.
- Declaration needs a Board recommendation; members can lower but not raise.
- Pay in cash, deposit within five days, pay within thirty.
- Declared dividend is a debt and is not revoked.
- Unpaid amounts and shares move to the Fund after seven years.
Read next
- Dividend Under Companies Act 2013: Declaration, Interim and Final
- Dividend Waiver and Dividend in Kind
- IEPF Compliance Calendar for Companies
- Secretarial Standards SS-1 and SS-2: Summary
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.