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CS Professional · Banking and Insurance - Laws and Practice · Regulatory Framework of Banks

Under a scheme framed by the RBI under Section 45MBA for Konark Housing Finance Ltd, the chairman's pay is reduced and some of the shares held by the managing director are cancelled. The managing director claims compensation for the cancelled shares. Which statement is correct?

No compensation is payable. Section 45MBA(3) provides that officers whose pay and allowances are reduced, or shareholders whose shares are cancelled under a resolution scheme, are not entitled to any compensation, so the managing director's claim fails.

  1. ACompensation is payable at the book value of the shares
  2. BCompensation is payable only if the Central Government approves
  3. CNo compensation is payable, as Section 45MBA(3) denies itCorrect
  4. DCompensation is payable only to the chairman, not the managing director

Explanation

Section 45MBA(2)(a) and (b) allow the scheme to reduce pay and cancel shares held by the CEO, MD, chairman or senior management or their relatives. Section 45MBA(3) says those whose pay is reduced or shares cancelled are not entitled to any compensation. So book value compensation is wrong.

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