Answer: The statement is correct, because the Companies Act requires unpaid dividend to be kept in a separate account meant only for paying it to the shareholders.
- Once dividend is declared it becomes a debt due to the shareholders; the money belongs to them and not to the company.
- Under Section 124, dividend that is not paid or claimed within 30 days of declaration must be transferred within 7 days to a special account called the ‘Unpaid Dividend Account’ in a scheduled bank.
- This amount can be used only for paying dividend to the shareholders who claim it; the company cannot use it for its business or any other purpose.
- If the amount remains unpaid or unclaimed for 7 years, it must be transferred, with the interest accrued, to the Investor Education and Protection Fund (IEPF) set up by the Central Government.
- A company that fails to transfer the amount is liable to pay interest at 12% p.a. and penalties.
- Hence unpaid dividend cannot be used by the company.
