Energy Mills Ltd. has issued equity shares with a face value of 10 per share. Mr. Amit and Mr. Burman are both friends. Mr. Amit holds 1,000 fully…

(a) The Companies Act, 2013, under Section 51, provides two possible ways for distributing dividends: Equal Dividend on All SharesProportional Dividend Based on Paid-up Amount According to the given scenario i. Mr. Amit has 1,000 shares × ₹ 10 (fully paid) = 10,000 10% of 10,000 = 1000 ii. Mr. Burman has 1,000 shares × ₹ 5(partially paid) = 5,000 10% of 5000 = 500 Hence Mr. Amit receives - 1,000 as he holds fully paid-up shares, whereas Mr. Burman receives - 500, as his shares are partly paid-up (5per share instead of 10). Hence following shall be the answer to the questions: (I) The decision of the company to distribute dividends in proportion to the paid-up amount on shares is legally valid, provided that its Articles of Association (AOA) explicitly permit such a practice. This is in accordance with Section 51 of the Companies Act, 2013. It states that the company if so authorised by article, may be permitted to pay dividends in proportion to the amount paid-up on each share. The Board of Directors of a company may decide to pay dividends on pro rata basis if all the equity shares of the company are not equally paid-up. However, in the case of preference shares, dividend is always paid at a fixed rate. (II) The Articles of Association play a crucial role in deciding how dividends are paid. (a) If the AOA is silent on the matter, dividends must be paid equally on all shares of the same class. (b) If the AOA expressly allows, dividends may be paid in proportion to the paid-up value of shares. Proportional Dividend Based on Paid-up Amount: As in the given case, the AOA allows, dividends can be paid in proportion to the paid-up value of shares.