Company Law Board

As per Section 388B, the Central Government has the power to make a reference to the Company Law Board against any managerial personnel. The reference can be made on grounds including that the person concerned has, in the conduct and management of the affairs of the company, been guilty of fraud, misfeasance or persistent negligence. Thus, the Central Government, if satisfied with the contents of the complaint may make a reference to the Company Law Board with a request to inquire into the case and record a finding whether or not Mr. Clever is a fit and proper person to hold the office of Managing Director. The application made to CLB must contain a concise statement of the circumstances and material as the Central Government may consider necessary for the purpose of the enquiry. The CLB will hear all the parties viz.
(1) The Central Government;
(2) the Respondent, Mr. Clever; and
(3) the Company.
The CLB has powers to pass any interim order to the effect that the respondent Mr. Clever shall not discharge any of the duties of his office until further orders and appoint a suitable person in place of the respondent.
At the conclusion of the hearing, the CLB will record its finding. If the finding of the CLB is against the respondent, the Central Government, by order, shall remove him from office, as provided in Section 388 E (1) of the Companies Act, 1956.
The person against whom such an order is passed is debarred from holding the post of director, etc., for a period of 5 years from the date of order of removal. Also, no compensation is payable to him for termination of office.
Mr. Doubtful was appointed as Managing Director of Carefree Industries Ltd. for a period of five years with effect from 1.4.1998 on a salary of Rs. 121akhs per annum with other perquisites. The Board of Directors of the company, on coming to know of certain questionable transactions, terminated the services 0f the Managing Director from 1.3.2001. Mr. Doubtful termed his removal as illegal and claimed compensation from the company. Meanwhile, the company paid a sum of Rs. 51akhs on ad hoc basis to Mr. Doubtful pending settlement of his dues. Discuss whether:
(i)The company is bound to pay compensation to Mr. Doubtful, and, if so, how
much.