Suspense crime, Digital Desk : Some Indian firms are suggesting dividend declarations even though they have suffered a standalone loss for the last financial year—subject to shareholder consent, of course. With promoter holdings between 33 and 75 percent, these dividends are likely to provide hefty returns to promoters, regardless of the losses on the bottom line for the firm’s operations.

Indian corporate law permits distribution of dividends on the current year’s profits or retained earnings subjected to certain criteria. This means that firms can pay out dividends even if their income statements indicate losses.

Largest Dividend Declarations by Loss-Making Firms

These include some of the most obvious ones like EID Parry India, which declared a whopping 900 percent dividend – Rs 9 for every share of face value Re 1—and lost in standalone terms Rs 428 crore. The company plans to distribute Rs 160 crore as dividend which means promoters holding 41.6 percent of the shares will reap Rs 66.6 crore out of this.

Edelweiss Financial Services posted a Rs 52 crore loss but also proposed a 150 percent dividend (Rs 1.5 for every share) totaling to Rs 138 crore thus over Rs 45 crore will go to the promoters who have 32.7 percent stake.

Other Firms Surprisingly Following Dividend Losses

Aditya Birla Real Estate: Dividend of Rs 22.4 crore paid despite incurring a loss of Rs 15 crore.

Sh kelkar and co: Paid a dividend of Rs 13.8 crore while making a loss of Rs 13.5 crore.

Majestic Auto: Saw a company loss of Rs 3.4 crores, of which Rs 7.8 crores was split amongst the promoters and shareholders.

IL&FS Investment Managers: Loss of 2.2 crores, but paid dividend of Rs 8.79 crores; Promoters will receive 4.43 crores.

Oricon Enterprises: Dividend of Rs 7.85 crore paid despite incurring a loss of Rs 15 crore. Also, Rs 5.16 crores set aside for promorers.

63 Moons Technologies: Paid a dividend of 5.53 crore while incurring a loss of 1.8 crores. Inturn, 2.52 crores set aside for the promoters.

Irrespective of their losses, smaller firms have pledged dividend payouts from 2 lakhs to 10 crores.

Legal Provisions Regulating Charges

According to Indian Laws, dividends can only be paid from accumulated profits if companies fulfill certain regulatory requirements. But, should a company wish to spend from its general reserve, there are heightened constraints — limitations on the amount, these limitations on capping the rate of spending, and shareholder necessity.

Past-year payments can be labeled interim dividends and do not require consent. Even so, firms must account for depreciation and any outstanding losses prior to these payouts.

Furthermore, firms must obtain lender consent if they are under debt obligations to ensure that they do not breach any covenants. Analysts recommend that firms take into consideration strategic matters such as the firm’s growth objectives, stock valuation, and macroeconomic strategies before devising any final plans for dividends.

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