Module: | Specialized Audits, Tech & ESG Disclosures
Q78: Consider the following statements regarding the declaration of dividend and transfer of unpaid amounts under the Companies Act for the financial year ending 2026:
1. A company must transfer the total amount of the declared dividend to a separate bank account within 5 days from the date of declaration.
2. Any dividend remaining unpaid or unclaimed in that separate account for a period of exactly five consecutive years must be transferred to the Investor Education and Protection Fund (IEPF).
3. The underlying shares in respect of which the dividend has not been paid or claimed for seven consecutive years shall also be transferred to the IEPF authority.
Which of the above statements is/are incorrect?
2. Any dividend remaining unpaid or unclaimed in that separate account for a period of exactly five consecutive years must be transferred to the Investor Education and Protection Fund (IEPF).
3. The underlying shares in respect of which the dividend has not been paid or claimed for seven consecutive years shall also be transferred to the IEPF authority.
Which of the above statements is/are incorrect?
✅ Correct Answer: B
🎯 Quick Answer:
B. Only 2 is incorrect.Structural Breakdown: Statement 1 is correct; opening a separate scheduled bank account within 5 days ring-fences the cash.
Statement 2 is incorrect; the statutory waiting period for an unpaid dividend to be transferred to the IEPF is strictly seven years, not five years.
Statement 3 is correct; Section 124(6) mandates that if the dividend is unclaimed for seven consecutive years, the shares themselves must be seized and transferred to the IEPF demat account.
Historical/Related Context: The IEPF was created because promoters were quietly absorbing decades of unclaimed dividends from deceased or untraceable retail shareholders back into their own equity structures.
Causal Reasoning: Waiting seven years provides a sufficiently long, reasonable window for legal heirs to resolve probate disputes and claim their rightful inheritance before the state takes custody of the financial assets to prevent corporate unjust enrichment.