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Sec 319

CA Aastha (CA) (38 Points)

24 August 2012

hi can anyone please explain sec 319 of companies act? Thanks in advance :)

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(Guest)

Dear Aastha,

Before understanding this Section, you will have to understand "Compensation for the loss of office". "Compensation for the loss of office" is a payment made by a company to a director who is forced to retire before the expiry of his usual service contract.

Section 319 of the Companies Act 1956 says that no director should be paid "Compensation for the loss of office" or “Consideration for retirement from office” by way of selling whole or part of the company property or undertaking.

Neither the company nor the transferee of such undertaking should pay the director "Compensation for the loss of office" from the proceeds received by way of selling such property.

If payment is made to director in this way, then Convene a general meeting to pass the necessary ordinary resolution granting the approval for making such compensation for the loss of office to the director.

If no such approval of shareholder is granted, the payment made to such director from proceeds of company property should be deemed to be received by him ‘in trust for the company’. The meaning of this expression, ‘in trust for the company’ is that, though he is not in reality a trustee, the section requires him to be treated as if he were [CIT v. Bombay Trust Corporation, (1930) ILR 54 Bom 216. ]

Regards,

Veeral Gandhi

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CA Aastha (CA) (38 Points)
Replied 25 August 2012

thanks a million for making it crystal clear veeral :) Could u explain sec 320 as well?

(Guest)

Dear Aastha,

While, section 319 was in relation to company being restricted to pay it's director "Compensation for the loss of office" by way of proceeds received by selling company property.

Whereas, section 320 is in relation to restricting the company to pay it's director "Compensation for the loss of office" by way of proceeds received from :

1. An offer made to shareholders.

2. Accepting an offer made by some other company, to the director's company, to become it's holding company's subsidiary or it's own subsidiary.

3. Accepting an offer made by an individual to obtain one-third of voting power of the director's company.

Please try to understand rest provisions of this section by yourself as they are simple to understand.

Regards,

Veeral Gandhi