Companies Act 2013 - Compensation for Loss of Office or MD or WTD

Section 202 of the Companies Act, 2013 deals with Compensation for loss of office of managing director (MD) or whole-time director (WTD) or manager

Reasons for payment of compensation:

(a) for loss of office; or

(b) as consideration for retirement from office; or

(c) in connection with such loss or retirement.

Compensation can be paid only to:

(a) MD; or

(b) WTD; or

(c) Manager.

Amount of compensation:

Permissible period: Lower of-

Ø  The unexpired tenure of directorship; or

Ø  3 years.

Basis: ‘Average remuneration’ actually earned during-

Ø  3 years immediately preceding the date of cessation of office; or

Ø  Such shorter period for which the director has held his office.

Prohibition of compensation in certain cases:

(a) reconstruction or amalgamation of company takes place. As a result of such reconstruction or amalgamation, the director resigns from the company, but is appointed as MD or manager or any other officer of the reconstructed or amalgamated company.

(b) the director resigns voluntarily.

(c) the office of director is vacated under section 203 or 283.

(d) the director has instigated or is responsible for the termination of his directorship.

(e) the company is wound up by or subject to supervision of the Court due to negligence of director.

(f) the director is guilty of fraud or breach of trust or gross negligence in the conduct of the affairs of the company.

However, mere allegations that a director was involved in certain questionable transactions will not disentitle him from receiving compensation.