• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

A COMPANY wants to transfer back to its profit and loss account the amount available in its Unpaid Dividend Account created pursuant to Section 205A in the wake of the new regime ushered in by the Companies (Amendment) Act, 1999 which, among other things, has put an end to the regime of transfer to the general revenue account of the Central Government any amount in the above Unpaid Dividend Account which stood credited therein for three years and has simultaneously mandated that the credit to the Unpaid Dividend Account be transferred to the Investor Education and Protection Fund after seven years. The company's justification for doing this is: a) the balance in the Unpaid Dividend Account relate to the period before the amendment came into effect, and b) the Government has closed its account with the Punjab National Bank into which one earlier deposited the amounts lying in the Unpaid Dividend Account that were more than three years old. Is this possible? -- V. Murali, e-mail

No, the company simply cannot do this. The law does not distinguish between old and fresh credits into the Unpaid Dividend Account. The old credits shall continue to remain in the Unpaid Dividend Account for seven years from the date of their transfer to this account whereafter it shall be transferred to the Investor Education and Protection Fund. Neither the new regime nor the old regime permits a company to write back to its profit and loss account any part of the balance in its Unpaid Dividend Account.

Earlier, a credit to the Unpaid Dividend Account would have been shunted to the general revenue of the Central Government and one had to prefer his claim with the Central Government if he did not bestir to collect his dividend within three years from the expiry of 30 days of its declaration from the company itself. Now he does not have to go the Central Government.

The company itself is expected to entertain his claim for a longer period — seven instead of three years. If he does not bestir during these seven years he has to kiss the money goodbye, as it would now belong to the amorphous Investor Education and Protection Fund. But his loss cannot be the company's gain. The company, therefore, has no right to transfer the old credits to the profit and loss account.

Instead, it has to guard it for four more years, that is, for seven years from the date of transfer after which it must transfer them to the extent still not claimed to the Investor Education and Protection Fund in terms of Section 205A(5).

Asset moves

A COMPANY took loan from a bank to buy an asset. The asset itself was offered as security for the loan. Soon thereafter, the asset was transferred by the company to its 100 per cent subsidiary. And some time later, the subsidiary in turn transferred the asset to a partnership firm in which one of the directors of the company is a partner? Are these transfers valid? -- Pramod Shrikant D., Bangalore

It appears that the company had created a fixed charge on the asset in question. By its very nature, a fixed charge allows the company to deal with the asset so charged subject to the conditions of the charge, one of which presumably would be restriction on transfer of the asset without the consent of the bank.

It is also presumed that such a charge was registered in terms of Section 125 of the Companies Act, 1956.

If all these presumptions are indeed true, then the transfers can definitely be assailed if they were done without taking the bank into confidence.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

S. Murlidharan

Send this article to Friends by E-Mail

Stories in this Section
From data to info

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line