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
CAclubindia
