COMPENSATION FOR LOSS OF OFFICE - SEC 318
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Topics to be discussed:-
1. Reasons for payment of compensation
2. Compensation to whom
3. Amount of compensation
4. Prohibition of compensation
1. Reasons for payment of compensation:-
There are three reason for eligibility for compensation:-
· for loss of office
· as consideration for retirement
· in connection with loss of office or retirement
2. Compensation to whom :-
This section will be applicable for MD or WTD or Manager
3. Amount of compensation:-
Compensation will be lower of the two:-
· Average remuneration for unexpired tenure of office
OR
· Amount for 3 years calculated on the basis of average remuneration
Basis of the calculation above:-
Average remuneration has to be taken for calculation of above:-
· Average for 3 yrs immediately proceedings the date of cessation of office
· Such shorter period of office
4. Prohibition of compensation:-
Following are the conditions when compensation is prohibited:-
· Reconstruction or amalgamation of company takes place and director resigns from the company is appointed as MD or Manager or any other officer of the reconstructed or amalgamated company.
· Director resigns voluntarily.
· Vacation of office u/s 283 or u/s 203.
· Director is responsible for the termination of office.
· Company wound up due to the negligence of the director.
· Director is guilty of fraud, misconduct, breach of trust in the conduct of the affairs of the company
Point to be Noted:-
· A director is not bound to disclose any breach of his fiduciary duty so as to give an opportunity to remove him - Bell Vs Lever Bros.
· No refund of compensation can be claimed even if after removal of a director it is discovered that he has been guilty of breach of duty and corrupt practices and that he could have been removed without compensation - Bell Vs Lever Bros.
· Mere allegation that a director was involved in cetain questionable transaction will not prohibit him from receiving the compensation.
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