Dividend Warrants are a traditional yet important instrument used by companies to distribute profits to shareholders. While modern electronic transfers are replacing them, dividend warrants still hold legal significance, especially in contexts where physical payments or records are essential.
What is a Dividend Warrant?
A Dividend Warrant is a financial instrument issued by a company to its shareholders, authorizing the payment of declared dividends. It operates like a cheque and enables shareholders to claim their dividend either through bank deposit or encashment.
A Dividend Warrant is not a negotiable instrument, unlike cheques or demand drafts.
Legal Basis and Recognition in Indian Law
While not specifically defined in the Companies Act, 2013 or Negotiable Instruments Act, 1881, dividend warrants are recognized under corporate practice and jurisprudence. The issuance of dividends is governed by:
- Section 123 of the Companies Act, 2013: Relates to declaration and payment of dividend.
- Rule 5 of Companies (Declaration and Payment of Dividend) Rules, 2014
- SEBI Regulations: For listed companies regarding payment modes.
Key Features of Dividend Warrants
- Issued to shareholders whose names appear on the register on the record date.
- Used when dividend payment is not made via electronic transfer.
- Contains shareholder’s name, amount payable, and dividend period.
- Valid for a limited time—generally six months.
- Can be revalidated or reissued upon request.
Difference Between Dividend Warrant and Cheque
| Criteria | Dividend Warrant | Cheque |
|---|---|---|
| Issuer | Company | Bank account holder |
| Purpose | Payment of dividend | General payments |
| Negotiability | Not a negotiable instrument | Is a negotiable instrument |
| Legal Protection | Limited, as it is not a bank instrument | Covered under Negotiable Instruments Act |
| Validity | Usually six months | Typically three months |
Mode of Payment of Dividend: SEBI and MCA Guidelines
For listed companies, as per SEBI Circulars and Companies Act, dividends should preferably be paid via:
- Electronic Clearing Services (ECS)
- NEFT/RTGS
- If electronic mode is unavailable → via Dividend Warrant or Cheque
As per Section 123(4) of the Companies Act, 2013, the dividend must be paid within 30 days of declaration, or the company is liable to pay interest.
What Happens if a Dividend Warrant is Not Encased?
- If unclaimed for 7 consecutive years, the dividend amount is transferred to:
- Investor Education and Protection Fund (IEPF) under Section 124 of the Companies Act, 2013.
- Shareholder can claim it back by applying to the IEPF Authority.
When are Dividend Warrants Used?
- When shareholders have not provided updated bank account details.
- For shareholders in remote locations with no digital infrastructure.
- For companies with older shareholder registers.
- As a backup when electronic transfers fail.
Advantages and Disadvantages
Advantages:
- Traceable form of payment
- Official company-issued proof of dividend
- Can serve as a receipt or evidence of dividend declaration
Disadvantages:
- Risk of being lost or delayed in transit
- Needs manual banking
- Slower than digital transfer methods
Legal Remedies for Shareholders
If the dividend warrant is lost, delayed, or not credited:
- Shareholder can request a duplicate warrant.
- File a complaint with the Investor Grievance Cell or Registrar of Companies (ROC).
- Apply for refund through IEPF if unclaimed for 7+ years.