Sections 243 and 244 of the Companies Act, 2013
Section 243 deals with the legal consequences when the National Company Law Tribunal (NCLT) terminates, sets aside or modifies certain managerial agreements while granting relief under Section 242. Section 244 specifies which members have the right to apply to the Tribunal under Section 241 and permits the Tribunal to waive the statutory eligibility requirements.
Section 243: Consequence of termination or modification of certain agreements
Section 243 operates after an order under Section 242 terminates, sets aside or modifies an agreement covered by Section 242(2). Its purpose is to define the consequences of that Tribunal order for the company and the persons managing it.
No claim for damages or compensation
Where the Tribunal makes such an order, the order does not create a claim against the company for damages, compensation for loss of office or other compensation arising from the affected agreement or otherwise.
Five-year restriction on reappointment
A managing director, other director or manager whose agreement has been terminated or set aside cannot, for five years from the date of the order, be appointed or act in that capacity in the company without leave of the Tribunal. Before leave is granted, notice of the proposed application must be served on the Central Government and the Government must receive a reasonable opportunity of being heard.
Person found not fit and proper
Section 243(1A), inserted with effect from 15 August 2019, imposes a five-year restriction where a person is found not to be a fit and proper person under Section 242(4A). The Central Government may, with leave of the Tribunal, permit the person to hold the relevant office before the five-year period expires.
No compensation on removal
Section 243(1B) overrides inconsistent provisions of the Act, other laws, contracts, the memorandum and the articles. A person removed from the office of director or another office connected with the conduct and management of the company's affairs is not entitled to compensation for loss or termination of office.
Penalty for contravention
Under Section 243(2), a person who knowingly acts as managing director, director or manager in contravention of Section 243(1)(b) or Section 243(1A), and every director knowingly party to the contravention, is liable to a fine which may extend to Rs. 5 lakh. The imprisonment component formerly contained in this provision was omitted with effect from 21 December 2020.
Section 244: Right to apply under Section 241
Section 241 enables qualifying members to approach the Tribunal in cases concerning oppression, prejudice or specified changes in management or control. Section 244 sets the membership thresholds for making that application.
| Company type | Eligibility under Section 244(1) |
|---|---|
| Company having share capital | At least 100 members or at least one-tenth of the total number of members, whichever is less; alternatively, member or members holding at least one-tenth of the issued share capital, provided all calls and other sums due on those shares have been paid. |
| Company without share capital | At least one-fifth of the total number of members. |
Waiver by the Tribunal
The proviso to Section 244(1) gives the Tribunal power, on an application, to waive all or any of the numerical or shareholding requirements in Section 244(1)(a) or (b), enabling members who do not meet the ordinary threshold to seek relief under Section 241.
Jointly held shares
For calculating membership under Section 244(1), shares jointly held by two or more persons are counted as one member.
Application with written consent
Where members are entitled to apply under Section 244(1), one or more of them may, after obtaining the written consent of the others, make the application on behalf of and for the benefit of all of them.
How Sections 241, 242, 243 and 244 work together
Section 241 creates the route for eligible members to complain of oppression or prejudicial conduct. Section 244 determines who may use that route, subject to the Tribunal's waiver power. Section 242 provides the Tribunal's remedial powers. Section 243 then governs important consequences where a Section 242 order terminates, sets aside or modifies specified managerial agreements or results in relevant disqualification or removal.
Official statutory source
For the authoritative and updated statutory text, refer to the Companies Act, 2013 on India Code and the Ministry of Corporate Affairs. Users should check later amendments, notifications and applicable NCLT/NCLAT decisions when dealing with a specific proceeding.
This page provides a general explanation of the statutory provisions and is not a substitute for advice on the facts of a particular case.