Section 191: Payment to director for loss of office, etc., in connection with transfer of undertaking, property or shares
This section regulates payments to company directors for loss of office in connection with transfers of undertaking, property, or shares, requiring disclosure and approval of such payments.
Penalty
(5) If a director of the company makes any default in complying with the provisions of this section, such director shall be liable to a penalty of one lakh rupees.]
The section, clause by clause
What the section says
In plain terms
(1)No director of a company shall, in connection with—
A company director cannot receive payment for loss of office in connection with a transfer of undertaking, property, or shares unless the payment details have been disclosed to and approved by the company's members in a general meeting.
(1)(a)the transfer of the whole or any part of any undertaking or property of the company; or
(1)(b)the transfer to any person of all or any of the shares in a company being a transfer resulting from—
(1)(b)(i)an offer made to the general body of shareholders;
(1)(b)(ii)an offer made by or on behalf of some other body corporate with a view to a company becoming a subsidiary company of such body corporate or a subsidiary company of its holding company;
(1)(b)(iii)an offer made by or on behalf of an individual with a view to his obtaining the right to exercise, or control the exercise of, not less than one-third of the total voting power at any general meeting of the company; or
(1)(b)(iv)any other offer which is conditional on acceptance to a given extent, receive any payment by way of compensation for loss of office or as consideration for retirement from office, or in connection with such loss or retirement from such company or from the transferee of such undertaking or property, or from the transferees of shares or from any other person, not being such company, unless particulars as may be prescribed with respect to the payment proposed to be made by such transferee or person, including the amount thereof, have been disclosed to the members of the company and the proposal has been approved by the company in general meeting.
(2)Nothing in sub-section (1) shall affect any payment made by a company to a managing director or whole-time director or manager of the company by way of compensation for loss of office or as consideration for retirement from office or in connection with such loss or retirement subject to limits or priorities, as may be prescribed.
Payments made by a company to a managing director or whole-time director for loss of office are allowed, subject to prescribed limits and priorities.
(3)If the payment under sub-section (1) or sub-section (2) is not approved for want of quorum either in a meeting or an adjourned meeting, the proposal shall not be deemed to have been approved.
If a payment proposal is not approved due to a lack of quorum in a meeting or an adjourned meeting, it is not considered approved.
(4)Where a director of a company receives payment of any amount in contravention of sub-section (1) or the proposed payment is made before it is approved in the meeting, the amount so received by the director shall be deemed to have been received by him in trust for the company.
A director who receives a payment in contravention of the rules must return the amount to the company, as it is deemed to have been received in trust for the company.
(5)If a director of the company makes any default in complying with the provisions of this section, such director shall be liable to a penalty of one lakh rupees.]
(6)Nothing in this section shall be taken to prejudice the operation of any law requiring disclosure to be made with respect to any payment received under this section or such other like payments made to a director.
This section does not affect other laws that require disclosure of payments made to directors.
The right-hand column is written from the section text, not quoted from it, and it has no legal force. Where the two differ, the left-hand column is the law.
Amendment notes
- 1. Subs. by Act 22 of 2019, s. 28, for sub-section (5) (w.e.f. 2-11-2018).
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Reproduced from the official India Code print for reference. Check the current text on India Code before you rely on it, and read the section alongside its Rules. Nothing here is legal advice.