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

Ramesh was the managing director of Sagar Ltd, which was amalgamated with Tide Ltd. He resigned from Sagar Ltd because of the amalgamation and was appointed as the whole-time director of Tide Ltd, the resulting company. Sagar Ltd proposes to pay him compensation for loss of office. Under the Companies Act, 2013, what is the position?

No compensation can be paid. Section 202(2)(a) prohibits payment where a director resigns because of reconstruction or amalgamation and is then appointed as managing or whole-time director, manager or other officer of the resulting company. Ramesh satisfies both conditions, so the three-year cap is irrelevant.

  1. ACompensation can be paid, capped at remuneration for the remainder of his term or three years, whichever is shorter
  2. BNo payment can be made, because he resigned on amalgamation and was appointed as whole-time director of the resulting companyCorrect
  3. CCompensation can be paid without any limit, because the loss arose from an amalgamation
  4. DCompensation can be paid only if the company is being wound up

Explanation

Section 202(2)(a) bars payment where a director resigns because of reconstruction or amalgamation and is appointed as managing or whole-time director, manager or other officer of the resulting company. Ramesh meets both conditions. The three-year cap in section 202(3) applies only where payment is permitted, so it does not help here.

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