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Violation of SCRA -- Interim dividend rush kicks up row

Ambarish Mukherjee
Nithya Subramanian

NEW DELHI, March 4

THE race among corporates to outwit the Government by declaring interim dividends before the end of fiscal 2001-02 has kicked off a major controversy of sorts. For, the strategy adopted by the corporates violates the provisions of the listing agreement which is governed by the Securities and Contracts (Regulation) Act (SCRA), according to exchange officials.

According to the existing rules, the rush to pay interim dividends violates Clause 16 and Clause 19 of the listing agreement. As per Clause 16, for fixing the record date of interim dividend, there has to be a notice of at least 42 days for physical shares and 30 days for demat shares. To complete the entire process before March 31, the market regulator, SEBI, will have to waive the 30-day clause.

In place of a flat 10 per cent tax on dividends, the Budget for 2002-03 has imposed a tax on the recipient of dividends the rate of which is to be determined by the income-tax slab under which he is assessed with effect from April 1, 2002. Evidently, the race among corporates to make the dividend payout by the end of this month is to avail of the existing tax benefit.

Already, around a hundred companies have announced interim dividend plans within four days of the Budget presentation. The Delhi Stock Exchange (DSE) has received such intimations from 70 companies within two working days after the Budget. These companies have asked the DSE authorities to condone the record dates fixed by their respective boards.

The listing agreement, however, demands a mandatory 30 days notice for determining the record date for interim payment. The record date is crucial because registration of ownership of the share in the books of the company on that particular date entitles the holder to receive dividend.

The list of companies rushing to pay interim dividends is notable for the inclusion of several companies in which promoters have a substantial stake. These include Bajaj Auto, Reliance Industries and Reliance Petroleum, MRF, Wipro and Nestle.

Highly placed officials in the National Stock Exchange and DSE have told Business Line that it is the responsibility of the exchange officials to check whether the actions of companies are in compliance with the laid down norms.

"We have put up the record dates on our system as a routine matter for investor information. But if this move doesn't comply with the provisions of the listing agreement we'll seek an explanation from the companies,'' said a top NSE official.

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