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

Mahesh Ltd, a company with a managing director, Mr Rao, is amalgamated with Neel Industries Ltd. Mr Rao resigns because of the amalgamation and is appointed managing director of the amalgamated company. Under Section 202 of the Companies Act, 2013, what is the position on compensation for loss of office to Mr Rao?

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

  1. ANo compensation payment may be made, because he resigned due to the amalgamation and was appointed managing director of the resulting companyCorrect
  2. BCompensation may be paid up to three years' average remuneration regardless of the new appointment
  3. CCompensation may be paid only if the Tribunal approves the scheme with a specific clause
  4. DCompensation may be paid but only to non-executive directors, not to Mr Rao

Explanation

Section 202(2)(a) bars payment where a director resigns as a result of reconstruction or amalgamation and is appointed as managing or whole-time director, manager or other officer of the resulting company. Mr Rao fits this exactly. The three-year cap in 202(3) applies only where payment is otherwise permitted.

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