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CMA Final · Corporate Financial Reporting · Absorptions, Amalgamations, External Reconstruction

Dhruv Ltd's managing director, Mr. Rao, resigns on the amalgamation of Dhruv Ltd with Eka Ltd and is appointed as a whole-time director of the amalgamated company. Dhruv Ltd proposes to pay him Rs 40 lakh as compensation for loss of office. Under Section 202 of the Companies Act, 2013, what is the position?

No compensation can be paid. Section 202(2)(a) prohibits payment where a director resigns as a result of amalgamation and is appointed as managing or whole-time director, manager or other officer of the resulting company, which is exactly Mr. Rao's situation.

  1. APayment is permitted up to the lower of remaining term or three years' average remuneration
  2. BPayment is permitted only if approved by the Tribunal
  3. CNo payment can be made, because he resigned owing to the amalgamation and was appointed as whole-time director of the resulting companyCorrect
  4. DPayment is permitted in full as it is an amalgamation

Explanation

Section 202(2)(a) bars payment where the director resigns because of the reconstruction or amalgamation and is appointed as managing or whole-time director, manager or other officer of the resulting body corporate. The limit in 202(3) applies only where payment is otherwise allowed, so option A is wrong.

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