Companies Act Section 243 — Consequence of termination or modification of certain agreements
CHAPTER XVI PREVENTION OF OPPRESSION AND MISMANAGEMENT
Commercial / Corporate
Summary
Where an order made under section 242 terminates, sets aside, or modifies an agreement, that order will not create any right for anyone to claim damages or compensation from the company. This applies whether the claim is for loss of office or for any other reason, and whether it is based on the agreement itself or on anything else.
Under clause (b) of sub-section (1), if a managing director, other director, or manager has their agreement terminated or set aside by such an order, they cannot be appointed or act as a managing director, other director, or manager of the company for five years from the date of the order, unless they get permission from the Tribunal. The Tribunal will not grant this permission unless notice of the intention to apply for it has been served on the Central Government, and the Central Government has been given a reasonable opportunity to be heard on the matter.
Sub-section (1A) states that a person who is not a fit and proper person according to sub-section (4A) of section 242 cannot hold the office of a director or any other office connected with the conduct and management of the affairs of any company for five years from the date of that decision. However, the Central Government may, with the leave of the Tribunal, permit such a person to hold such an office before the five-year period ends.
Sub-section (1B) provides that, regardless of anything else in this Act or any other law, or any contract, memorandum, or articles, when a person is removed from the office of a director or any other office connected with the conduct and management of the company's affairs, that person is not entitled to receive any compensation for the loss or termination of that office.
Sub-section (2) says that any person who knowingly acts as a managing director, other director, or manager of a company in violation of clause (b) of sub-section (1) or sub-section (1A), and every other director of the company who knowingly is a party to such a violation, will be punishable with a fine that may extend to five lakh rupees.
Official Text
(1) Where an order made under section 242 terminates, sets aside or modifies an agreement such as is referred to in sub-section (2) of that section,—
(a) such order shall not give rise to any claims whatever against the company by any person for damages or for compensation for loss of office or in any other respect either in pursuance of the agreement or otherwise;
(b) no managing director or other director or manager whose agreement is so terminated or set aside shall, for a period of five years from the date of the order terminating or setting aside the agreement, without the leave of the Tribunal, be appointed, or act, as the managing director or other director or manager of the company:
Provided that the Tribunal shall not grant leave under this clause unless notice of the intention to apply for leave has been served on the Central Government and that Government has been given a reasonable opportunity of being heard in the matter. 3[
(1A) The person who is not a fit and proper person pursuant to sub-section (4A) of section 242 shall not hold the officer of a director or any other officer connected with the conduct and management of the affairs of any other officer connected with the conduct and management of the affairs of any company for a period of five years from the date of the said decision:
Provided that the Central Government may, with the leave of the Tribunal, permit such person to hold any such office before the expiry of the said period of five years.
(1B) Notwithstanding anything contained in any other provisions of this Act, or any other law for the time being in force, or any contract, memorandum or articles, on the removal of a person from the officer of a director or any other officer connected with the conduct and management of the affairs of the company, that person shall not be entitled to, or be paid, any compensation for the loss or termination of officer.]
(2) Any person who knowingly acts as a managing director or other director or manager of a company in contravention of clause (b) of sub-section (1) 4[or sub-section (1A)], and every other director of the company who is knowingly a party to such contravention, shall be punishable 5*** with fine which may extend to 6[five lakh rupees].