Removal of director due to loss of confidence does not appear in the Companies Act and Managing Director is eligible for compensation

The 1st respondent was functioning as Managing Director of the company since 17.04.1996 and
was not appointed for a fixed tenure and was removed from the company.

Section 202 of the Companies Act, 2013 provides for compensation of loss of office of removal of managing director.

“202. Compensation for loss of office of managing or whole-time director or manager.- (1) A company may make payment to a managing or whole-time director or manager, but not to any other director, by way of compensation for loss of office, or as consideration for retirement from office or in connection with such loss or retirement.”

The arguments advanced by the appellant company that 1st respondent was removed due to loss of confidence was not legally entitled to any compensation for the loss of office as Managing Director in the absence of any breach by the 1st appellant and in the absence of any fixed period of appointment as Managing Director.

NCLAT’s Observations:-

The NCLAT observed that upon removal as Managing Director, 1st respondent is entitled to compensation for loss of office as per Section 202 of the Companies Act, 2013.

NCLAT held that loss of confidence as argued by the appellant does not appear in the Companies Act and accordingly, the NCLT, Chennai bench has rightly given its findings to give compensation  together with interest  from the date of removal of the 1st Respondent as Managing Director.

*CADS SOFTWARE INDIA PVT LTD. vs MR. K.K. JAGADISH [2019] 214 Comp Cas 433 (NCLAT – Del)