8.7 Compensation for loss of office


This does not include any bona fide payment by way of damages for breach of contract or by way of pension in respect of past services. It means compensation for the abolition of the office of the director due owing to such changes as:

  1. A change in the constitution of a company e.g. merging with another company and the director concerned could not be absorbed in the combined undertaking
  2. A change in the nature of the company e.g. from manufacturing activity to trading activity
  3. A change in the mode of management and as a consequence of this, the office of the person concerned becomes redundant.

Under Section 181, a company may pay compensation for loss of office or for retirement from office to a Managing Director or a director holding the office of manager or a whole time service director. No other director is entitled to such compensation. Thus payment shall not be made.

  1. Where the director resigns in view of re-construction or amalgamation of the company and takes an appointment as managing Director or other office in the reconstructed company.
  2. Where the director resigns otherwise than on re-construction or amalgamation.
  3. Where the office is vacated by virtue of a court order restraining fraudulent persons from managing affairs of companies.
  4. Where the director has taken part directly or indirectly in bringing about the termination of his office.