### Statutory Solution & Analysis — ICAI Corporate Law
#### 1. Statutory Provisions (Section 123 & Rule 3 of Dividend Rules, 2014):
When a company declares dividend out of accumulated reserves due to inadequacy or absence of profits in any year, it must strictly comply with the following 4 conditions:
- **Condition 1 (Rate of Dividend)**: The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the three years immediately preceding that year.
- **Condition 2 (Total Withdrawal)**: The total amount to be drawn from such accumulated profits shall not exceed 10% of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement.
- **Condition 3 (Set-off of Losses)**: The amount so drawn shall first be utilized to set off the losses incurred in the financial year in which dividend is declared.
- **Condition 4 (Minimum Reserves Retained)**: The balance of reserves after such withdrawal shall not fall below 15% of its paid-up share capital.
#### 2. Analysis and Mathematical Verification for Royal Ceramics Ltd.:
- **Max Rate**: Cannot exceed average rate = **12%**.
- **Max Withdrawal**: 10% of (Paid-up Capital ₹280,000,000 + Free Reserves ₹210,000,000) = 10% of ₹490,000,000 = **₹49,000,000**.
- **Loss Set-off**: Net loss of ₹70,000,000 must be set off first, leaving ₹-21,000,000 (since withdrawal ₹49,000,000 is less than current loss of ₹70,000,000, no dividend can practically be paid without exhausting the drawn amount on losses).
- **Minimum Reserve Retained**: 15% of Paid-up Capital ₹280,000,000 = ₹42,000,000. Available reserves after withdrawal = ₹210,000,000 - ₹49,000,000 = ₹161,000,000, which satisfies the 15% condition.
#### 3. Conclusion:
The proposed declaration must strictly limit the rate to 12% and total withdrawal to ₹49,000,000. However, since current losses exceed permissible withdrawal, the company cannot declare dividends for this year.