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CMA Final · Corporate and Economic Laws · Prevention of Oppression and Mismanagement

Mr. Rao, the managing director of Kaveri Textiles Ltd, ceased to hold office. His average annual remuneration over the preceding three years was Rs 40 lakh, and 5 years of his term remained. The company has not been wound up and none of the section 202(2) bars applies. What is the maximum compensation for loss of office permissible under section 202(3)?

The maximum is Rs 120 lakh. Section 202(3) limits compensation to remuneration for the remaining term or three years, whichever is shorter, at the three-year average. Since five years remain, three years applies, giving 3 x Rs 40 lakh.

  1. ARs 40 lakh
  2. BRs 80 lakh
  3. CRs 120 lakhCorrect
  4. DRs 200 lakh

Explanation

Section 202(3) caps the payment at remuneration for the remainder of the term or three years, whichever is shorter, computed on the average remuneration of the preceding three years. Remaining term is 5 years, so three years applies: 3 x Rs 40 lakh = Rs 120 lakh. Rs 200 lakh wrongly uses the full remaining term.

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