Section 202: Compensation for loss of office of managing or whole-time director or manager
This section regulates the compensation that can be paid to a managing or whole-time director or manager for loss of office.
The section, clause by clause
What the section says
In plain terms
(1)A company may make payment to a managing or whole-time director or manager, but not to any other director, by way of compensation for loss of office, or as consideration for retirement from office or in connection with such loss or retirement.
A company can pay a managing or whole-time director or manager compensation for losing their office, retiring, or in connection with such loss or retirement, but this does not apply to other directors.
(2)No payment shall be made under sub-section (1) in the following cases, namely:—
No payment can be made in certain cases, including where the director resigns and is appointed to a similar role in a reconstructed or amalgamated company, or where the company is being wound up due to the director's negligence or default.
(2)(a)where the director resigns from his office as a result of the reconstruction of the company, or of its amalgamation with any other body corporate or bodies corporate, and is appointed as the managing or whole-time director, manager or other officer of the reconstructed company or of the body corporate resulting from the amalgamation;
(2)(b)where the director resigns from his office otherwise than on the reconstruction of the company or its amalgamation as aforesaid;
(2)(c)where the office of the director is vacated under sub-section (1) of section 167;
(2)(d)where the company is being wound up, whether by an order of the Tribunal or voluntarily, provided the winding up was due to the negligence or default of the director;
(2)(e)where the director has been guilty of fraud or breach of trust in relation to, or of gross negligence in or gross mismanagement of, the conduct of the affairs of the company or any subsidiary company or holding company thereof; and
(2)(f)where the director has instigated, or has taken part directly or indirectly in bringing about, the termination of his office.
(3)Any payment made to a managing or whole-time director or manager in pursuance of sub-section (1) shall not exceed the remuneration which he would have earned if he had been in office for the remainder of his term or for three years, whichever is shorter, calculated on the basis of the average remuneration actually earned by him during a period of three years immediately preceding the date on which he ceased to hold office, or where he held the office for a lesser period than three years, during such period:
Any payment made to a managing or whole-time director or manager cannot exceed the remuneration they would have earned if they had stayed in office for the remainder of their term or for 3 years, whichever is shorter, based on their average remuneration over the preceding 3 years.
provisoProvided that no such payment shall be made to the director in the event of the commencement of the winding up of the company, whether before or at any time within twelve months after, the date on which he ceased to hold office, if the assets of the company on the winding up, after deducting the expenses thereof, are not sufficient to repay to the shareholders the share capital, including the premiums, if any, contributed by them.
(4)Nothing in this section shall be deemed to prohibit the payment to a managing or whole-time director, or manager, of any remuneration for services rendered by him to the company in any other capacity.
This section does not prevent a managing or whole-time director or manager from receiving payment for services rendered to the company in a different capacity.
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. The words “the Central Government or” omitted by Act 1 of 2018, s. 69 (w.e.f. 12-9-2018).
- 2. The words “this Chapter” omitted by s. 70, ibid. (w.e.f. 12-9-2018).
- 3. Subs. by s. 70, ibid. for “any of the sections aforesaid” (w.e.f. 12-9-2018).
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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.