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      Question

      Section 16 of the SARFAESI Act deals with compensation

      to directors upon takeover of management. What does Section 16(1) provide?
      A Directors are entitled to compensation equivalent to one year's salary upon removal Correct Answer Incorrect Answer
      B Directors are entitled to pro-rata compensation for unexpired term Correct Answer Incorrect Answer
      C Only managing directors are entitled to compensation for loss of office Correct Answer Incorrect Answer
      D No managing director, director, manager or person in charge of management shall be entitled to any compensation for loss of office or premature termination of any contract of management under this Act Correct Answer Incorrect Answer
      E Compensation must be determined by the DRT upon application by the displaced director Correct Answer Incorrect Answer

      Solution

      Section 16(1) provides a categorical bar: '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.' This prevents displaced management from seeking compensation as a bargaining chip or from using contractual entitlements to delay enforcement. Section 16(2) preserves the right of such persons to recover from the business moneys otherwise due to them (e.g., salary accrued) other than compensation.

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