Payment to a Director for Loss of Office: s. 191

A payment to a director for loss of office made in connection with a transfer deal is barred by section 191 of the Companies Act, 2013 unless the members approve it first. The bar covers compensation for loss of office and consideration for retirement, whether the money comes from the company, the transferee of the undertaking or property, the transferees of shares, or any other person.

When is a payment to a director for loss of office caught by section 191?

The section is written as a prohibition with a condition attached, and the trigger is the connection between the money and the deal. No director shall, in connection with either of two things, receive any payment by way of compensation for loss of office, or as consideration for retirement from office, or in connection with such loss or retirement.

The first is the transfer of the whole or any part of any undertaking or property of the company. The second is the transfer to any person of all or any of the shares in a company, but only where the transfer results from one of four kinds of offer.

Limb (i) is a takeover offer to all shareholders, and it is the limb that overlaps with India's takeover code. SAST open offers covers the SEBI regime that governs such an offer for a listed company, which runs alongside this section rather than replacing it.

Limb (iii) is worth reading twice, because the one-third threshold is about control of voting power at a general meeting, not about acquiring one-third of the shares.

The bar lifts only if particulars as may be prescribed with respect to the proposed payment, including the amount, have been disclosed to the members of the company and the proposal has been approved by the company in general meeting.

What must be disclosed before the members vote?

The particulars are prescribed by rule 17(1) of the Companies (Meetings of Board and its Powers) Rules, 2014. As notified, no director shall receive any payment by way of compensation in connection with any event mentioned in section 191(1) unless the following are disclosed to the members and they pass a resolution at a general meeting approving the payment: the name of the director; the amount proposed to be paid; the event due to which compensation becomes payable; the date of the Board meeting recommending the payment; the basis for the amount determined; the reason or justification for the payment; the manner of payment, whether in cash or otherwise and how; the sources of payment; and any other relevant particulars the Board thinks fit.

On the rules cited here. The rule text on this page comes from the copy of the Companies (Meetings of Board and its Powers) Rules, 2014 that thc.nic.in serves, and it is a notification text rather than a consolidation. Its body is the principal notification, G.S.R. 240(E) dated 31 March 2014, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), and made under sections 173, 175, 177, 178, 179, 184 to 189 and 191 read with section 469 of the Act. Bundled after it is a separate, later notification, G.S.R. 811(E) dated 3 November 2025, the Companies (Meetings of Board and its Powers) Amendment Rules, 2025, which substitutes sub-rule (2) of rule 11 and nothing else. The footer note on that 2025 notification records the principal rules as last amended by G.S.R. 409(E) dated 15 June 2021. So the rule text in the body is the 2014 text as originally notified, the amendments made between 2014 and June 2021 are not incorporated in it, and a rule quoted from it is not by itself evidence of the rule in force today. Check the amending notifications before relying on any rule text here for a filing. The section text on this page is the Companies Act, 2013 as consolidated on India Code, with each amendment footnote resolved on its own page.

Two of those nine are the ones that make the resolution meaningful rather than formal. "Basis for the amount determined" forces a stated method, and "sources of payment" forces the company to say whose money it is, which matters when the section expressly contemplates payment by a transferee rather than by the company.

What happens to money paid without approval?

Section 191(4) turns it into a trust. Where a director receives payment of any amount in contravention of sub-section (1), or the proposed payment is made before it is approved in the meeting, the amount received is deemed to have been received by him in trust for the company. Timing alone is enough: paying first and approving afterwards is inside the sub-section.

Section 191(3) removes one way of manufacturing an approval. If the payment under sub-section (1) or sub-section (2) is not approved for want of quorum, in a meeting or in an adjourned meeting, the proposal shall not be deemed to have been approved. A meeting that fails for want of quorum is not a tacit yes.

Section 191(5), substituted by Act 22 of 2019, section 28, with effect from 2 November 2018, makes a director in default liable to a penalty of one lakh rupees.

How is section 191 different from section 202?

They cover different payments and they are linked by a carve-out. Section 191(2) says nothing in sub-section (1) affects any payment made by a company to a managing director, whole-time director or manager by way of compensation for loss of office, or consideration for retirement, subject to limits or priorities as may be prescribed. That is the section 202 payment.

Compensation for loss of office under section 202 covers the second column. Rule 17(2) of the same rule set ties them together explicitly: a payment by a company to a managing director, whole-time director or manager for loss of office shall not exceed the limit set out under section 202.

Where a payment for loss of office shows up in a filing

The section's own machinery is what produces the trace. A payment caught by section 191 requires a resolution at a general meeting, and the notice for that meeting has to carry the nine particulars, which puts the director's name, the amount and the stated basis into a document circulated to members. For a listed company in a control transaction, that notice sits alongside the takeover disclosures the SEBI regime requires, which SAST open offers covers, and alongside the ordinary remuneration disclosures in the Board's report.

The Board's recommendation date is itself one of the nine particulars, which means the Board meeting that proposed the payment is dated on the record. Meetings of the Board under section 173 covers that meeting.

Where this sits in the disclosure picture

• Compensation for loss of office under section 202 covers the payment section 191(2) carves out of this section.
• SAST open offers covers the takeover regime that runs alongside limb (i) of section 191(1)(b).
• Contract of employment with a managing director covers the document that records the term a severance is measured against.
• Disclosure of interest by a director covers the general interest-disclosure duty that runs alongside this one.
• Meetings of the Board under section 173 covers the Board meeting whose date is one of the nine prescribed particulars.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.