Debentures & Unpaid Dividend: Board Checklist
Debenture funding and dividend distribution both sit at the intersection of finance and company law. The board should review security, conversion, trustee/covenant issues, dividend source and unpaid dividend tracking before approvals.
Debenture control
Section 71 says a company may issue debentures with an option to convert such debentures into shares, either wholly or partly at redemption, subject to approval requirements where applicable. It also prohibits debentures carrying voting rights - a debenture is a debt instrument, and giving it voting rights would blur the line between debt and equity in a way the Act does not permit.
Where debentures are offered to more than 500 persons, or are secured, the board must appoint a debenture trustee before the offer, and the trustee holds a fiduciary duty to protect debenture-holders’ interests - the trustee appointment and the trust deed are the two documents the board finance file should hold alongside the offer letter and any charge-creation record.
Dividend control
Section 123 says no dividend shall be declared or paid except out of permitted profits/reserves routes after providing for depreciation, subject to the section. Once declared, the dividend must actually be PAID within 30 days of declaration (Section 127) - a declared but unpaid dividend is not a compliance-neutral state, it is a running clock.
Section 124 requires that any dividend still unclaimed or unpaid at the end of that 30-day window be transferred to a separate Unpaid Dividend Account within 7 days after the 30-day period expires. If money in that account remains unclaimed for a further 7 CONSECUTIVE years, Section 125 requires the company to transfer it - along with the corresponding shares, not just the cash - to the Investor Education and Protection Fund (IEPF). A shareholder can later reclaim transferred amounts and shares directly from the IEPF authority via www.iepf.gov.in, but the company cannot use unclaimed dividend money for its own business purposes in the meantime.
Finance checklist
| Area | Control |
|---|---|
| Convertible debentures | Check special resolution and conversion terms. |
| Secured debentures | Check charge creation and trustee/security records. |
| Dividend declaration | Check profits, depreciation, deposit default and board/shareholder route. |
| Unpaid dividend | Transfer unpaid/unclaimed amount to unpaid dividend account where triggered. |
| IEPF | Track long-unclaimed amounts and shares for eventual IEPF workflow. |
Finin2min warning
Official sources used
This article is intentionally source-limited to official India Code / MCA material. Verify final filing positions with the latest Act, Rules, MCA forms and portal advisories before publishing.
See "Source and review trail" below for Sections 123-125 and the Companies Act official PDF.
FAQs
Section 71 covers debentures.
Section 123 covers declaration of dividend.
Section 124 deals with unpaid dividend account and Section 125 deals with the Investor Education and Protection Fund.
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- Companies Act & MCA
- Official starting point
- www.mca.gov.in
Page source links
Primary sources & related provisions
Statutory provisions referenced in this guide: