Author Name:   lexcomply

As per the provisions of Section 202 of Companies Act 2013, compensation for loss of office/consideration for retirement from office may be paid to MD/WTD or manager subject to specified limits and except in the specified cases.

Payment of compensation for loss of office of MD or WTD or Manager

As per the provisions of Section 202 of Companies Act 2013, compensation for loss of office/consideration for retirement from office may be paid to MD/WTD or manager subject to specified limits and except in the specified cases.

Key Considerations:
# Ensure that amount proposed to be paid is compensation for loss of office or consideration for retirement from office and is proposed to be paid only to a managing or whole-time director or manager, but not to any other director of the company. [Section 202(1)]

# Ensure that no compensation for loss of office/consideration for retirement from office is paid to MD/WTD or manager in the following cases:-

# Where the director has resigned 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 amalgamated company;

# where the director has resigned from his office otherwise than as mentioned in (a) above;

# where the office of the director is vacated under sub-section (1) of section 167;

# where the company is being wound up, due to the negligence or default of the director;

# 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

# Where the director has instigated, or has taken part directly or indirectly in bringing about, the termination of his office. [Section 202(2)]

# Ensure that compensation/consideration proposed to be paid to MD/WTD or Manager does 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, 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. [Section 202(3)]

# Ensure that payment of compensation is not made to the director in the event of the commencement of the winding up of the company, whether before or at any time within 12 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. [Proviso to Section 202(3)]


The following procedure is to be followed for payment of compensation for Loss of Office of MD or WTD or Manager under Section 202 read with Rule No. 17 of the Companies (Meetings of Board and its Powers) Rules, 2014:-

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