INSPITE OF STANDALONE LOSSES, 24 LISTED COMPANIES DECALARE TO PAY DIVIDENDS FOR FINANCIAL YEAR 2025.

DIVIDEND DESPITE LOSSES: WHAT SECTION 123 OF THE

 COMPANIES ACT REALLY SAYS?

INSPITE OF STANDALONE LOSSES, 24 LISTED COMPANIES

 DECALARE TO PAY DIVIDENDS FOR FINANCIAL YEAR 2025.

 

The companies in the above list have incurred loss in 2025 and have declared dividend as per item 1 above and therefore there is no need for them to refer to the Dividend Rules.

EID Parry, Edelweiss Financial Services, Shipping Land, AB Real Estate, S H Kelkar & Co, Majestic Auto, lL&FS Investment Managers, Manali Petrochemicals, and KCP are among the 24 companies that made losses on a standalone basis in the fiscal 2025 and have proposed to pay dividends despite of losses in 2025 subject to shareholders approval.

SECTION 123 OF THE COMPANIES ACT, 2013 ALLOWS A COMPANY TO DECLARE DIVIDENDS OUT OF:

The profits of the current year after providing for depreciation,

OR

The accumulated profits of previous financial years, again after providing for depreciation.

So even if the company makes a loss in the current year, it can still pay dividends from its free reserves—which are basically past profits that have been retained by the company.

EID Parry had a standalone loss of ₹428 crore but a consolidated profit of ₹1,773 crore, and Edelweiss had a standalone loss of ₹52 crore but a consolidated profit of ₹536 crore. They used free reserves or profits from previous years to propose dividends.

WHAT IF THE COMPANY HAS MADE LOSSES BOTH ON STANDALONE AND CONSOLIDATED BASIS?

Even then, dividend declaration is possible only if there are sufficient free reserves built from earlier profitable years. But companies must follow conditions such as:

·      Disclosing the source of dividend payment,

·      Justifying the rationale behind it in the AGM,

·      Ensuring that such payouts don’t erode core capital.

REGULATORY SAFEGUARDS

·      Lender approval needed for dividends from accumulated profits

·      Companies should pay attention to strategic factors like growth plans, stock valuation, and geopolitical developments affecting operating costs while deciding on dividend declarations.

·      Companies must account for depreciation and adjust any current or past losses before distributing dividends.

·      Further, dividend payout from general reserves requires shareholder approval, while those drawn from prior-year profits may be declared as interim dividends by the board without such approval.

CLOSING THOUGHTS

Thus, in a nutshell ,the dividend declaration is not just a thought process to add value to stakeholders but also to convey a message about financial stability as well as to build investors’ confidence.

R V SECKAR , FCS,LLB  79047 19295