(12.14.6) Compensation to Directors for Loss of Office

Section 318 provides that no compensation for loss of office may be paid by a company to any director other than the managing director, or wholetime director, or a director holding the office of manager. Even in their cases, no such payment must be made: (i) when he resigns his office on reconstruction or amalgamation of the company; (ii) where the office is vacated under s.203 or s.283; (iii) where he has to give up directorship beyond 20 directorships; (iv) where the winding up of the company takes place due to his negligence and mismanagement; (v) where he has been guilty of fraud or breach of trust in relation to, or of gross negligence in or gross mismanagement of the conduct of the affairs of the company or any subsidiary or holding company thereof; (vi) where he has instigated or has taken part directly or indirectly in bringing about the termination of his office.

Where, however, the compensation is payable, it must not exceed the remuneration which would have been earned by the director for the unexpired residue of the term or for three years whichever is shorter. The calculation of this amount should be based on the average remuneration actually earned by him during a period of three years immediately prior to the date on which he ceased to hold the office, or where he Held the office for a shorter period than three years, during such period. No such payment can be made to him if the winding up has commenced either before or at any time within 12 months after the date of his ceasing to hold office, if the assets of the company are not sufficient to repay to the shareholders the share capital including the premium, if any, contributed by them.