COMPENSATION FOR LOSS OF OFFICE - SEC 318

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.