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

Meera Industries Ltd's managing director, Mr. Rao, resigns because Meera is being amalgamated with Sagar Ltd, and he is immediately appointed as whole-time director of the resulting company, Sagar Ltd. Under Section 202 of the Companies Act, 2013, what is the position on compensation for loss of office?

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

  1. ACompensation may be paid up to three years' average remuneration
  2. BNo payment can be made under sub-section (1), since he resigned on amalgamation and was appointed in the resulting companyCorrect
  3. CCompensation may be paid only if the Tribunal approves the scheme
  4. DCompensation is payable only if Sagar Ltd is being wound up

Explanation

Section 202(2)(a) bars payment where the director resigns due to reconstruction or amalgamation and is appointed as managing or whole-time director, manager or other officer of the resulting company. Mr. Rao fits this, so the three-year cap in sub-section (3) is never reached.

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