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

Shyam Ltd's whole-time director Mr. Iyer ceases to hold office. He earned an average remuneration of ₹30 lakh per year over the preceding three years, and his remaining term was five years. Assuming no bar under Section 202(2) applies and the company is not wound up, what is the maximum compensation for loss of office permissible under Section 202(3)?

The maximum is ₹90 lakh. Section 202(3) limits compensation to remuneration for the remaining term or three years, whichever is shorter, at the average of the last three years. Here three years is shorter than five, so ₹30 lakh multiplied by three gives ₹90 lakh.

  1. A₹90 lakhCorrect
  2. B₹150 lakh
  3. C₹30 lakh
  4. D₹60 lakh

Explanation

Section 202(3) caps payment at the remuneration he would have earned for the remainder of his term or three years, whichever is shorter, on the basis of the average of the last three years. The shorter period is three years (versus five), so the cap is 30 × 3 = ₹90 lakh. ₹150 lakh wrongly uses the full remaining term.

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