Z Ltd. appointed Saleem as its Managing Director for a period of five years. After completion of three years of his tenure, Saleem resigned from office and claimed compensation for loss of office in respect of the unexpi

Power of the company to pay compensation: Section 202 of Companies Act 2013, provides that 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. Cases where no compensation is payable (Exceptions): However, under Section 202(2) no payment shall be made in the following cases: where the director resigns from his office as a result of the reconstruction of the company or of its amalgamation with any other body corporate or bodies corporate, and is appointed as the managing or whole-time director, manager, or other officer of the reconstructed company or of the body corporate resulting from the amalgamation; where the director resigns from his office otherwise than on the reconstruction/ amalgamation of the company; where the office of the director is vacated under Section 167(1); where the company is being wound up, whether by an order of the Tribunal or voluntarily, provided the winding up was due to the negligence or default of the director; where the director has been guilty of fraud or breach of trust or gross negligence or mismanagement of the conduct of the affairs of the company or any subsidiary company or holding company; and where the director has instigated, or has taken part directly or indirectly in bringing about, the termination of his office. Statutory Limit on Compensation {Section 202(3)} Any payment made to a managing or whole-time director or manager in pursuance of section 202 (1) shall not exceed the remuneration which he would have earned if he had been in office for (i) the remainder of his term; or (ii) for three years, whichever is shorter. Also, such amount of compensation shall be calculated on the basis of the average remuneration actually earned by him during a period of three years immediately preceding the date on which he ceased to hold office, or where he held the office for a lesser period than three years, during such period.