Chapter XII - Meetings of Board and Its Powers
Section 191
Section 191: payment to director for loss of office in connection with a transfer
Section 191 protects members when an undertaking or property is sold or control changes through a share offer. A director may not receive compensation for loss of office or retirement in connection with such a transfer, from the company, the transferee or anyone else, unless prescribed particulars are disclosed to members and the company approves in general meeting.
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This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) No director of a company shall, in connection with—(a) the transfer of the whole or any part of any undertaking or property of the company; or (b) the transfer to any person of all or any of the shares in a company being a transfer resulting from—(i) an offer made to the general body of shareholders; (ii) an offer made by or on behalf of some other body corporate with a view to a company becoming a subsidiary company of such body corporate or a subsidiary company of its holding company; (iii) an offer made by or on behalf of an individual with a view to his obtaining the right to exercise, or control the exercise of, not less than one-third of the total voting power at any general meeting of the company; or (iv) any other offer which is conditional on acceptance to a given extent, 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 from such company or from the transferee of such undertaking or property, or from the transferees of shares or from any other person, not being such company, unless particulars as may be prescribed with respect to the payment proposed to be made by such transferee or person, including the amount thereof, have been disclosed to the members of the company and the proposal has been approved by the company in general meeting. (2) Nothing in sub-section (1) shall affect any payment made by a company to a managing director or whole-time director or manager of the company by way of compensation for loss of office or as consideration for retirement from office or in connection with such loss or retirement subject to limits or priorities, as may be prescribed. (3) If the payment under sub-section (1) or sub-section (2) is not approved for want of quorum either in a meeting or an adjourned meeting, the proposal shall not be deemed to have been approved. (4) Where a director of a company 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 so received by the director shall be deemed to have been received by him in trust for the company. (5) If a director of the company makes any default in complying with the provisions of this section, such director shall be liable to a penalty of one lakh rupees. (6) Nothing in this section shall be taken to prejudice the operation of any law requiring disclosure to be made with respect to any payment received under this section or such other like payments made to a director.
Introduction
A payment received in contravention is deemed to be held in trust for the company. A director who defaults is liable to a penalty of one lakh rupees.
Section 191 commenced on 1 April 2014 under S.O. 902(E). Sub-section (5) was substituted by section 28 of the Companies (Amendment) Act, 2019, deemed in force from 2 November 2018, replacing a fine with a penalty.
Key takeaways
Transactions covered
Transfer of an undertaking or property, and share transfers resulting from general offers, offers to make the company a subsidiary, control offers and conditional offers.
Disclosure and approval
Prescribed particulars, including the amount, must be disclosed to members and approved in general meeting.
Held in trust
Money received in contravention is deemed received in trust for the company.
Penalty
A director who defaults is liable to a penalty of one lakh rupees.
Transfers that trigger the section
Sub-section (1) applies in connection with (a) the transfer of the whole or any part of any undertaking or property of the company, or (b) the transfer of shares resulting from: an offer to the general body of shareholders; an offer by another body corporate to make the company its subsidiary or a subsidiary of its holding company; an offer by an individual to obtain the right to exercise, or control the exercise of, not less than one-third of the total voting power at any general meeting; or any other offer conditional on acceptance to a given extent.
What is prohibited
In connection with such a transfer, no director may receive any payment as compensation for loss of office, as consideration for retirement, or in connection with such loss or retirement, whether from the company, the transferee of the undertaking or property, the transferees of shares or any other person, unless prescribed particulars of the proposed payment, including the amount, have been disclosed to members and the proposal approved by the company in general meeting.
Under sub-section (3), a proposal not approved for want of quorum, at a meeting or an adjourned meeting, is not deemed approved.
Consequences
Under sub-section (4), an amount received in contravention of sub-section (1), or paid before approval, is deemed received by the director in trust for the company. Under sub-section (5), as substituted by the Companies (Amendment) Act, 2019, a director who makes any default in complying with the section is liable to a penalty of one lakh rupees.
Carve-outs
Sub-section (2) preserves payments by the company to a managing director, whole-time director or manager as compensation for loss of office or retirement, subject to prescribed limits or priorities (see also section 202). Sub-section (6) preserves any other law requiring disclosure of such payments.
Practical preparation
In any business transfer or takeover, identify every payment to directors linked to loss of office or retirement, including payments by the buyer; prepare the prescribed disclosure; obtain general meeting approval before payment; make sure the meeting is quorate; check any parallel disclosure requirements under other laws.
Practical checklist
Do
- Disclose the full amount and terms of any departure payment to members before the general meeting.
- Include payments by the acquirer or third parties, not only by the company.
Avoid
- Do not pay before approval; the money is then deemed held in trust for the company.
Illustrative example
Hypothetical: acquirer offers a director a retirement payment
In a share acquisition that will give the acquirer more than one-third of the voting power, the acquirer offers a non-executive director a payment to step down.
Trigger
The offer falls within sub-section (1)(b)(iii).
Disclosure
The prescribed particulars and amount are disclosed to members.
Approval
The payment is made only after approval at a quorate general meeting.
Outcome
- If paid without approval, the director would hold the money in trust for the company and face a penalty of one lakh rupees.
Glossary
- Compensation for loss of office
- A payment to a director because he or she ceases to hold office.
- Conditional offer
- An offer for shares that becomes binding only if a stated level of acceptances is reached.
Frequently asked questions
Does section 191 cover payments made by the buyer?
Yes. It covers payments from the company, the transferee of the undertaking or property, the transferees of shares or any other person.
What happens if the meeting is inquorate?
The proposal is not deemed approved, even at an adjourned meeting, under sub-section (3).
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026