A buyer-funded exit payment is not outside the approval review
Companies Act section 191 addresses loss-of-office or retirement-related payments connected with specified undertaking, property or share transfers. The relevant particulars, including the proposed amount, must be disclosed to members and the proposal approved in general meeting under the applicable provision. A payment made before that approval, or received in contravention of subsection (1), is deemed received by the director in trust for the company under subsection (4).
Screen the transaction before treating it as ordinary exit pay
Checked on 25 October 2026. Identify whether the payment is connected with transfer of the company’s undertaking or property, or a share-transfer offer of a kind listed in subsection (1)(b). The listed offer routes include an offer to the general body of shareholders, a specified corporate acquisition route, an individual’s offer aimed at obtaining control of at least one-third of total voting power, and an offer conditional on acceptance to a given extent.
The one-third test belongs to the specified individual-offer route. It is not a universal safe harbour for every acquisition or a rupee limit on compensation. Examine the relevant offer category before doing arithmetic. A payment’s description as goodwill, a consultancy fee or a buyer’s personal obligation does not by itself decide whether it is actually consideration for the director’s loss or retirement.
Keep company-funded managerial compensation separate
Subsection (2) preserves the separate treatment of company payments to a managing director, whole-time director or manager, subject to prescribed limits or priorities. Review section 202 and the applicable rules for that route rather than treating section 191 approval as an unlimited compensation entitlement. This article focuses on the transfer-payment screen and trust consequence, not a computation of section 202’s separate cap.
Prepare the prescribed disclosure and approval pack before payment: payer, recipient, transfer linkage, amount, basis, purpose, manner and source should be evidenced and checked against the applicable rules. This working paper is not a substitute for the complete prescribed particulars. Board approval alone is not the general-meeting approval required by subsection (1). A proposal not approved for want of quorum at the meeting or adjourned meeting is not deemed approved under subsection (3).
A premature receipt needs a transparent resolution
Retain the actual payment date and bank evidence. Do not retrospectively alter an approval date or assume a later meeting erases the trust consequence automatically. Identify the company’s rights, the director’s obligation and any appropriate legal steps before accounting for the receipt as the director’s unrestricted money. Other disclosure laws remain relevant under subsection (6); the transaction may also raise separate remuneration, related-party, securities or tax questions.
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Approval follows receipt
Assume a covered ₹12,00,000 payment is received on 10 June and the member meeting is on 20 June. Receipt is ten days before the meeting. Subsection (4)’s premature-payment consequence needs review for the full ₹12,00,000; the later meeting is not assumed to erase it.
Illustrative example 2: Payments split around the meeting
A covered proposal is ₹9,00,000. The director receives ₹3,00,000 before approval and ₹6,00,000 afterwards. Total receipts reconcile to ₹9,00,000, but the ₹3,00,000 early tranche needs separate trust-consequence analysis.
Illustrative example 3: Individual-offer boundary
Assume total voting power is represented by 3,000 equal votes. One-third is 1,000 votes. An individual’s qualifying offer aimed at control of 1,000 meets the numerical boundary; 999 is one below it. Other statutory offer routes must still be reviewed.
Illustrative example 4: Several payers
A covered exit arrangement proposes ₹5,00,000 from the buyer and ₹2,00,000 from another identified person. Total proposed payment is ₹7,00,000. Do not disclose only the buyer’s ₹5,00,000 without examining the second payment’s connection.
Illustrative example 5: No quorum is not approval
Assume the applicable meeting requires five qualifying attendees, but only four attend and no valid approval is obtained. The headcount shortfall is one. A ₹4,00,000 proposed payment is not deemed approved merely because nobody voted against it.
Illustrative example 6: Amount changed after disclosure
Members received a proposal for ₹8,00,000 but the commercial plan becomes ₹10,00,000, an increase of ₹2,00,000 or 25%. Reassess the required disclosure and approval before paying; do not assume the earlier proposal authorised any later amount.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the transfer and offer route. | Acquisition and offer documents. |
| 2 | Identify recipient and office. | Director and managerial-status records. |
| 3 | Map every payer and connected amount. | Payment and side-agreement schedule. |
| 4 | Classify purpose by substance. | Exit terms and service evidence. |
| 5 | Test the relevant voting-power limb. | Offer objective and voting-power working. |
| 6 | Prepare prescribed particulars. | Rules-based disclosure checklist. |
| 7 | Distinguish managerial compensation route. | Section 202 and rules review where relevant. |
| 8 | Verify valid member approval and quorum. | Notice, attendance and resolution records. |
| 9 | Compare receipt timing and amount. | Bank evidence and approved proposal. |
| 10 | Resolve premature or prohibited receipt. | Trust analysis, company action and accounting trail. |
Sixteen practitioner FAQs
1. Does buyer funding remove the section 191 issue?
No. Identify the payer and the transfer-linked payment covered by the provision.
2. Is every commercial consultancy fee an exit payment?
No. Examine its substance and actual services rather than assuming either classification.
3. Does any share transfer trigger the same limb?
The provision specifies offer categories; map the actual transaction.
4. Is one-third a compensation amount limit?
No. It is a voting-power condition in the specified individual-offer route.
5. Can a sub-one-third offer escape every other route?
No. Examine the remaining listed categories independently.
6. Does Board consent replace the required member approval?
Not for the subsection (1) general-meeting approval requirement.
7. Must the proposed amount be disclosed?
Yes. The section expressly includes it within the required particulars.
8. Can a payment be made first and routinely approved later?
Subsection (4) expressly addresses payment before meeting approval.
9. What does the premature receipt become under the section?
It is deemed received by the director in trust for the company.
10. Does the article assume later approval automatically removes that consequence?
No. Obtain a fact-specific conclusion and preserve actual dates.
11. Is lack of quorum treated as deemed approval?
Subsection (3) says the proposal is not deemed approved on that basis.
12. Are company-paid MD or WTD amounts unlimited?
No. Review subsection (2), section 202 and applicable prescribed limits or priorities.
13. Does a side payment require examination?
Yes. Trace all connected payers and purposes before approving the proposal.
14. Can an approved amount be increased without review?
Compare the changed proposal with the disclosures and approval actually obtained.
15. Does section 191 displace all other disclosure requirements?
Subsection (6) preserves the operation of other disclosure law.
16. What is the key audit evidence?
The complete arrangement, valid approval, actual receipt and a reasoned treatment of any premature amount.
Conclusion
An acquisition-related director exit payment requires its own section 191 screen. Identify the transfer, payer, recipient and proposed amount, obtain the required member approval before receipt, and recognise that a prohibited or premature receipt is held in trust for the company.