Dear Juhee,

Yes even in case of inadequacy of profits, dividend can be declared provided the following conditions are satisfied -

• The rate of dividend declared shall not exceed average rate in past three years
• Amount withdrawn from accumulated profits shall not exceed 1/10th of paid up share capital and free Reserves
• Amount so drawn shall first be utilised to set off against losses before any dividend is declared
• Balance of reserves after such withdrawal shall not fall below 15% of its paid up share capital
• If a company has carried forward losses and unabsorbed depreciation of earlier years and it earns profit during the year for which dividend is proposed to be declared, then the company shall first set off against profit for the year, lower of carried forward losses and or unabsorbed depreciation not provided in previous year/s. The balance profit may be considered for declaration of dividend.