Section 202 of the Companies Act, 2013
Section 202 of the Companies Act, 2013
– Compensation for loss of office of managing or whole-time director, or manager
📜 Bare Act Summary (Simplified):
This section governs when and how a company can pay compensation to a Managing Director (MD), Whole-Time Director (WTD), or Manager if they lose their office before the end of their term.
✅ Key Provisions of Section 202:
1. Eligibility for Compensation:
A company may pay compensation to its MD, WTD, or manager for loss of office or early termination, only if:
The director/manager is not guilty of fraud, breach of trust, or gross negligence;
The resignation or removal is not due to misconduct or disqualification under the Act.
2. No Compensation in Certain Cases:
No compensation is allowed if:
The person resigns voluntarily from their position,
The termination is due to misconduct, negligence, breach of trust, or disqualification,
The company is being wound up due to misconduct of the director/manager,
They are guilty of fraud or breach of faith, and
The company recovers compensation or damages from them.
3. Limit of Compensation:
The amount paid shall not exceed the remuneration they would have earned for the remaining term of office.
Example: If a director earning ₹10 lakh per year has 1 year left in term, maximum compensation = ₹10 lakh, unless a lower limit is agreed in the contract.
📌 Summary Table:
| Provision | Details |
|---|---|
| Who can be paid? | MD, Whole-time Director, or Manager |
| When is payment allowed? | Loss of office before expiry of term (without misconduct) |
| When is payment not allowed? | Misconduct, fraud, voluntary resignation, winding-up due to director’s fault |
| Limit on compensation | Cannot exceed remaining-term remuneration |
🧾 Example:
If Mr. X, the MD of ABC Ltd., is removed 6 months before his term ends, and his salary is ₹1 lakh/month:
➡ Max compensation = ₹6 lakh, only if he is not removed for misconduct or fraud.
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