Chapter VIII - Declaration and Payment of Dividend
Section 127
Section 127: punishment for failure to distribute dividends
If a declared dividend is not paid, or its warrant is not posted, within thirty days of declaration, every director who is knowingly a party to the default is liable to criminal punishment and the company pays simple interest at eighteen per cent a year.
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Need advice on Section 127?
This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
Where a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within thirty days from the date of declaration to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to two years and with fine which shall not be less than one thousand rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate of eighteen per cent. per annum during the period for which such default continues: Provided that no offence under this section shall be deemed to have been committed:— (a) where the dividend could not be paid by reason of the operation of any law; (b) where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with and the same has been communicated to him; (c) where there is a dispute regarding the right to receive the dividend; (d) where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder; or (e) where, for any other reason, the failure to pay the dividend or to post the warrant within the period under this section was not due to any default on the part of the company.
Introduction
Section 127 is the criminal consequence of not distributing a declared dividend on time. The punishment applies to a director who is knowingly a party to the default. The company is separately liable to pay interest for the period of default.
The proviso lists five situations in which no offence is deemed to have been committed, including legal bars, unworkable shareholder directions, disputes over entitlement, lawful adjustment and failures not due to the company’s default.
Key takeaways
Thirty days
The dividend must be paid, or the warrant posted, within thirty days from the date of declaration.
Director liability
A director knowingly a party to the default faces imprisonment up to two years and a fine of at least ₹1,000 for every day the default continues.
Company interest
The company pays simple interest at eighteen per cent a year for the period of default.
The offence
The offence arises when a declared dividend has not been paid, or the warrant for it has not been posted, within thirty days from the date of declaration to a shareholder entitled to payment. Every director who is knowingly a party to the default is punishable with imprisonment which may extend to two years, and with a fine of not less than one thousand rupees for every day the default continues. The company is liable to pay simple interest at eighteen per cent a year for the period of default.
Statutory exceptions
No offence is deemed to have been committed where: (a) payment was barred by the operation of any law; (b) the shareholder’s directions about payment could not be complied with and this was communicated to the shareholder; (c) the right to receive the dividend is disputed; (d) the dividend was lawfully adjusted against a sum due from the shareholder; or (e) for any other reason, the failure was not due to any default on the part of the company.
Relationship with section 124
Section 124 separately requires the unpaid or unclaimed dividend to be moved to the Unpaid Dividend Account after thirty days. Moving it under section 124 does not, by itself, settle whether the company paid or posted the dividend in time under section 127. Keep evidence of both.
Practical preparation
Fix the declaration date. Prepare payment instructions and warrants well within thirty days. Record bank and dispatch evidence for each shareholder. Document every case that falls within an exception, such as a dispute, a legal bar or a failed mandate, and communicate with the shareholder where clause (b) applies.
Practical checklist
Do
- Keep dated proof of payment or posting for each shareholder.
- Record the reason and evidence wherever an exception is relied on.
Avoid
- Do not let a declared dividend wait for funding after declaration.
- Do not rely on clause (b) without communicating to the shareholder that the directions cannot be followed.
Illustrative example
Hypothetical: failed bank mandate
A dividend payment to one shareholder bounces because the bank mandate is closed.
Record
Keep the bank return evidence and the date.
Communicate
Inform the shareholder that the payment instruction could not be followed.
Follow up
Pay on updated instructions, and move the amount to the Unpaid Dividend Account under section 124 if it is still unpaid.
Outcome
- The company can show a documented exception under clause (b) or (e) instead of an unexplained default.
Glossary
- Dividend warrant
- The instrument sent to a shareholder for payment of a dividend; section 127 refers to posting it within thirty days.
- Knowingly a party
- The condition that makes a director personally punishable under section 127.
Frequently asked questions
Is every director automatically liable?
No. Section 127 punishes a director who is knowingly a party to the default.
Does a dispute over who is entitled to the dividend lead to an offence?
Clause (c) of the proviso says no offence is deemed to have been committed where there is a dispute about the right to receive the dividend.
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026