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Section 51: Payment of dividend in proportion to amount paid up

Companies Act • Official Statutory Text & Practice Guide

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Act 2013
Section 50 All 470 Sections of Companies Act Section 52
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Legal Commentary & Landmark Judgments: Section 51

Section 51 of the Companies Act, 2013 authorizes a company, where empowered by its articles, to distribute dividends in proportion to the amount paid up on each share, departing from the common law presumption of dividend parity based on nominal face value.

  • Articles Authorization Requirement: A company may pay dividends in proportion to the amount paid up on each share only if expressly authorized by its articles of association; in the absence of such an enabling charter provision, dividends must be paid pro rata on the nominal face value of shares.
  • Proportional Distribution Rule: Where authorized (as under Regulation 83 of Table F), dividends are declared and paid strictly according to the amounts paid up on the shares, accommodating partly paid and fully paid equity within the same class without discrimination.
  • Equal Treatment within Paid-up Tiers: The distribution must treat all shares with identical paid-up capital equivalently, prohibiting arbitrary executive deviations or disparate percentage payouts within identical paid-up brackets.
Key Landmark Precedents:
  • Oakbank Oil Co. v. Crum, (1882) 8 App Cas 65: The House of Lords established that unless the articles expressly authorize payment of dividends in proportion to the amount paid up on each share, dividends must be distributed pro rata according to the nominal amount of the shares regardless of paid-up differences.
  • Morgan v. Gray, [1953] Ch 83: Held that dividend declarations must strictly adhere to the company's articles of association, and any dividend distribution that discriminates among shareholders outside the authorized formula is ultra vires and void.
  • Ramesh B. Desai v. Bipin Vadilal Mehta, (2006) 5 SCC 638: The Supreme Court observed that corporate distributions, whether by way of dividends or capital returns, must scrupulously adhere to statutory and charter stipulations governing paid-up capital proportions.
Courtroom Practice & Strategic Litigation Guidance:

In drafting or vetting corporate dividend resolutions, inspect the Articles of Association. If the AoA lacks the specific enabling clause permitted by Section 51, declaring dividends on paid-up amounts rather than nominal face value exposes the Board to an action for ultra vires dividend declaration, entitling holders of partly paid shares to demand parity based on nominal value.

Section 50 All 470 Sections of Companies Act Section 52