Section 191 of the Companies Act, 2013
Section 191 of the Companies Act, 2013 – Payment to Director for Loss of Office, etc., in Connection with Transfer of Undertaking, Property or Shares
Objective:
Section 191 regulates any compensation or payment made to a director when they lose their office in connection with:
The transfer of the company’s business or property, or
The sale of shares resulting in a change in the company’s control.
Key Provisions:
🔒 Restriction on Payment:
No director of a company shall receive any compensation for loss of office or retirement in connection with a:
Transfer of the whole or part of the undertaking
Transfer of any property or shares in the company
📣 Disclosure Requirements:
Full particulars of the proposed payment must be disclosed to the members, including:
Amount of payment
Circumstances of loss of office
Person making the payment (if not the company)
❌ Void Payments:
Any payment made without proper disclosure and approval is considered void.
The director receiving such amount is liable to refund it and it can be recovered as a debt due.
🛑 Exceptions:
This section does not apply to:
Managing Directors or Whole-time Directors whose terms of service already include such provisions
Compensation as per contractual obligation (if approved by shareholders)
Example:
If Company A is selling a large portion of its assets and, as a result, a director Mr. X is losing his position, any payment to Mr. X for that loss of office:
Must be disclosed to shareholders,
Approved in a general meeting, or else it’s not valid.
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