A company may declare dividend in the event of inadequacy of profits. The maximum total amount that may be drawn from accumulated free reserves is capped at:

1. Rule 3 of Companies (Declaration and Payment of Dividend) Rules — rate of dividend declared cannot exceed the average of three preceding years' dividend rates. 2. Also amount drawn from reserves is capped at 10% of (paid-up + free reserves). 3. Hence (B). _Source: ICAI BoS CA Inter Paper 2 — Declaration and Payment of Dividend_