Section 16 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
- (1)Notwithstanding anything to the contrary contained in any contract or in any other law for the time being in force, no managing director or any other director or a manager or any person in charge of management of the business of the borrower shall be entitled to any compensation for the loss of office or for the premature termination under this Act of any contract of management entered into by him with the borrower.
- (2)Nothing contained in sub-section (1) shall affect the right of any such managing director or any other director or manager or any such person in charge of management to recover from the business of the borrower, moneys recoverable otherwise than by way of such compensation.
Summary
- This rule applies when their management contract is ended prematurely because the business is taken over under the rules of this Act.
- Even though they cannot claim compensation for the loss of their office, they still have the right to recover any other money that the business legitimately owes them.
Practical examples
FAQ
1. Can a director demand a payout if they are removed during a business takeover under this Act?
No, the Act strictly prevents any director or manager from getting compensation for the loss of their office.
2. Does this mean the fired manager loses all the money the company owed them?
No, they can still claim other moneys owed to them, such as unpaid past wages or loans they made to the company, just not compensation for the termination itself.
3. Does this rule override the director's employment contract?
Yes, this rule applies regardless of anything written in their contract or any other law.
Test yourself
Q1.Under Section 16 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, who is explicitly denied compensation for loss of office?
Q2.According to Section 16 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, what type of financial claim is still allowed for a terminated director?
Q3.What specific event triggers the restriction on compensation described in Section 16 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002?
Q4.How does Section 16 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 treat existing employment contracts that guarantee a payout?