Central

Section 5 of The Preference Shares (Regulation of Dividends) Act, 1960

(1)The provisions of this Act shall have effect notwithstanding anything to the contrary contained in any law for the time being in force or in the memorandum or articles of a company or in any agreement between the company and its shareholders or in any resolution passed by the company in a general meeting or by its Board of directors.

(2)Notwithstanding anything contained in this Act, a company may, in the manner provided in section 106 of the Companies Act, increase the amount of dividend in respect of a preference shall beyond the limit specified in section 3 or section 4 of this Act.

Summary

The rules in this Act override any other conflicting laws that are currently in place.
The Act also overrides a company's own internal rules, including its memorandum, articles of association, any agreements with shareholders, or any resolutions passed by the company's board of directors or shareholders in a general meeting.
Even with this overriding power, a company is still allowed to increase a preference share dividend beyond the limits set in Section 3 or Section 4.
Any such increase beyond the limits must be done in the manner provided under section 106 of the Companies Act.

Practical examples

1Apex Logistics has an old agreement from 1955 with its preference shareholders that explicitly bans any increases in dividends. When this Act commenced, the company was required to increase the dividends under Section 3. Under Section 5(1), the Act overrides the old agreement, and Apex Logistics must pay the increased dividend.

2The directors of Crown Engineering wish to pay their preference shareholders a forty per cent dividend increase, which is higher than the thirty per cent required by Section 3. Under Section 5(2), they can do this as long as they follow the procedure set out in section 106 of the Companies Act.

FAQ

1. What happens if another law conflicts with the Preference Shares (Regulation of Dividends) Act, 1960?

This Act has overriding power, meaning its provisions will apply regardless of what any other conflicting law says.

2. Can a company's internal articles of association block the dividend increases required by this Act?

No, this Act overrides a company's memorandum, articles of association, and any agreements with shareholders.

3. Can a company pay a preference dividend increase that is higher than the limits in Section 3 or Section 4?

Yes, a company is permitted to increase dividends beyond the limits of Section 3 or Section 4.

4. How must a company go about increasing a preference dividend beyond the limits of Section 3 or Section 4?

The company must do so in the manner provided in section 106 of the Companies Act.

Test yourself

Q1.What does Section 5(1) say about agreements between a company and its shareholders that conflict with this Act?

Q2.Which of the following is NOT explicitly mentioned as being overridden by this Act in Section 5(1)?

Q3.Can a company increase preference dividends beyond the limits specified in Section 3 or Section 4?

Q4.What specific section of the Companies Act must be followed to increase dividends beyond the statutory limits under Section 5(2)?

Q5.In Section 5(1), what does the phrase notwithstanding anything to the contrary mean in plain language?

4APreviousSection 4A Deduction of income-tax.6NextSection 6 Act not to apply to participating preference dividends.

←Section 4A Section 6→

Central

Section 5 of The Preference Shares (Regulation of Dividends) Act, 1960

(2)Notwithstanding anything contained in this Act, a company may, in the manner provided in section 106 of the Companies Act, increase the amount of dividend in respect of a preference shall beyond the limit specified in section 3 or section 4 of this Act.

Summary

The rules in this Act override any other conflicting laws that are currently in place.
The Act also overrides a company's own internal rules, including its memorandum, articles of association, any agreements with shareholders, or any resolutions passed by the company's board of directors or shareholders in a general meeting.
Even with this overriding power, a company is still allowed to increase a preference share dividend beyond the limits set in Section 3 or Section 4.
Any such increase beyond the limits must be done in the manner provided under section 106 of the Companies Act.