CS Santosh Pandey
Recently the Company Law Board, Delhi Bench while dealing with a matter involving resignation of a director under the Companies Act, 1956, has passed an order in the case of Manav Kumar Agarwal V. Discovery Enterprises Pvt. Ltd & Others that, the resignation given by any Director from the post of Director shall not be construed as the resignation until the Board of Directors approve such resignation by passing a resolution in this regard. In this article we will analyze the aspects of resignation of director by considering the recent judgement made by Company Law Board, and whether it has any impact on the legal position stipulated under the Companies Act, 2013 (hereinafter referred to as ‘2013 Act’)
Facts of the case of Manav Kumar Agarwal V. Discovery Enterprises Pvt. Ltd & Others-
In the recent ruling quoted above, the petitioner had alleged that he had resigned from the post of director of the company w.e.f 18th of January, 2011, but the company did not file e-Form 32 and which was an obligatory action to be taken by the Company as per the provisions of Section 303(2) of the Companies Act, 1956.
Sub-section (2) of Section 303 of the Companies Act, 1956 says that-
The company shall, within the periods respectively mentioned in this sub-section, send to the Registrar a return in the prescribed form containing the particulars specified in the said register and a notification in the prescribed form of any change among its directors, managing directors, managers or secretaries, specifying the date of the change.
The period within which the said return is to be sent shall be a period of thirty days from the appointment of the first directors of the company and the period within which the said notification of a change is to be sent shall be thirty days from the happening thereof.
Further, the petitioner also alleged that as per Article 37 of the Company, a director shall be allowed to resign from the office of Director from such date as he may specify in the intimation regarding resignation given by him.
The petitioner had filed the said petition under section 614 of the Companies Act, 1956, which states as follows-
“If a company, having made default in complying with any provision of this Act which requires it to file or register with, or deliver or send to, the Registrar any return, account or other document, or to give notice to him of any matter, fails to make good the default within fourteen days after the service of a notice on the company requiring it to do so, the 1 [Tribunal] may, on an application made to it by any member or creditor of the company or by the Registrar, make an order directing the company and any officer thereof to make good the default within such time as may be specified in the order.”
Further, the petitioner also alleged that his name was not showing on the Board of the company in the duration of 11th of June, 2014 to 16th of July, 2014. That gap in the visibility of the name in the signatory details, might have occurred due to some technical issue. On analysing the same the petitioner filed the complaint that the name of the petitioner shall be removed, for which no action has been taken by the company or ROC.
Petitioner had also stated though the private companies are not covered under the ambit of Section 283 of the Companies Act, 1956 but still due to the enforcement of the article 37, the vacation of the office shall be considered valid.
Based on the facts available in the present case, the CLB, New Delhi Bench passes an order stating that-
1. Office of the director shall not be deemed to be vacated unless the resolution by the company has been passed in this respect;
2. The petition is not eligible to be entertained in the said provisions of Section 614 of the Companies Act, 1956, because if we go through the plain reading of the Section it intends to say that for every filing, atleast board resolution is required to be passed.
3. The tenure for which the name of the petitioner is disappeared from the signatory details of the company cannot be construed as the vacation of his office.
4. Section 283 is not going to be considered for the present case as it is not applicable on private companies, and because it specifically mention some situations under which the office of the director shall be considered as vacated, whether or not, resolution has been passed in this respect, and the resignation given by the director voluntarily does not construed any situation under it.
LEGAL POSITION UNDER THE COMPANIES ACT, 1956 BEFORE THIS RULING BY THE CLB, DELHI BENCH.
In the 1956, Act, there were no such provisions governing the aspects or actions to be taken in the case of resignation of Directors to give it a valid go through, and it was governed by the articles of association of the Company
Further the aspect regarding resignation of a person from the post of director was decided by the Company Law Board, Chennai Bench in the case law of Rajan Sangameshwaran v. Saralaya Technologies (P.) Ltd. and Others, and it was held that-
“the resignation letter given by the director concern, will be treated as the valid proof of his resignation and no one can restraint him from vacating the office from the date of receipt of resignation letter by the company or the date mentioned in it, if any. And the director will be liable for the acts or deeds done in his tenure acting as the director of the Company.”
There were various other rulings which conveys the same view which has been decided in the above mentioned case.
In the case of Manav Kumar Agarwal V. Discovery Enterprises Pvt. Ltd & Others, principal bench of Company Law Board, New Delhi did not consider the order passed by the Company Law Board, Chennai Bench, and passed the contradictory order. In context of matters related to provisions of Companies Act, 1956 and subject to facts of the case and articles of association of companies, this CLB order would prevail in the states covered within the jurisdiction of CLB, Delhi Bench unless and until this order is reversed in the near future.
SCENARIO UNDER THE COMPANIES ACT, 2013
Unlike the Companies Act, 1956, the new act clearly stipulates the actions to be taken in the case of resignation of any director of the Company. Section 168 of the Companies Act, 2013 deals with the same and says that-
“ (1) A director may resign from his office by giving a notice in writing to the company and the Board shall on receipt of such notice take note of the same and the company shall intimate the Registrar in such manner, within such time and in such form as may be prescribed and shall also place the fact of such resignation in the report of directors laid in the immediately following general meeting by the company:
Provided that a director shall also forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within thirty days of resignation in such manner as may be prescribed.
(2) The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later:
Provided that the director who has resigned shall be liable even after his resignation for the offences which occurred during his tenure.
(3) Where all the directors of a company resign from their offices, or vacate their offices under section 167, the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in general meeting.”
If we analyse the provisions of above section the legislature has clearly put obligations on each of the parties involved in the whole scenario. There are three parties involved in the scenario i.e. the Board of Directors, the company and the person resigning from the post of director of the company. Now, we will discuss the obligation on the part each of the parties one by one-
a) Obligation on the part of the Board of Directors of the Company-
If we go through the plain reading of the Section we can analyse that the following words have been used-
‘A director may resign from his office by giving a notice in writing to the company and the Board shall on receipt of such notice take note of the same’
The using of the words ‘and’ and ‘shall’ together stipulates the obligation on the board of Directors of the company to note down the resignation of the director by way of Board Resolution, in due course of time keeping in mind the consequences of delay in noting and filing Form DIR 12 (additional fee) as the resignation of the director will take effect from the receipt of the notice by the company or the date, if any particularly specified by the director, whichever is later.
b) Obligation and defence available to the director giving resignation-
In the 2013 Act, in the case of resignation of director without his consent, the registrar has put one obligation on the part of the director giving resignation by inserting a proviso to sub-section (1) of Section 168 of the Companies Act, 2013, which is as follows-
‘Provided that a director shall also forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within thirty days of resignation in such manner as may be prescribed.’
By analyzing the above proviso we can make a conclusion that the resignation shall be construed as fully implemented when the requirements discussed in the above paragraphs has been complied along with the proviso.
By proviso, the legislature has made the director also responsible to be concerned about his position.
The directors are made responsible to file e-Form DIR-11 to the registrar within 30 days of the informing of the resignation by him.
Though, it is considered as the obligation on the part of the director, but if we see the other side of the said proviso, it is creating a defensive ground for the director if the director has not made any resignation and the company had fraudulently made the same.
The order passed by the honble Company Law Board, Principal Bench, New Delhi is effective for the cases belonging to the 1956 Act. As we have discussed earlier that the Company Law Board, New Delhi Bench had not considered the order passed by the Company Law Board, Chennai Bench, it can be an interesting fact to be observed in future. But for now, the latest order will prevail in the areas covered under the jurisdiction of CLB, Delhi Bench.
While under the 2013 Act, the said order given will not be effective to the cases belonging to the 2013 Act, because as per the provisions of Section 168(2) of the 2013 act, the resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later and there is no requirement of Board Resolution for making the effect of the notice being served by the director on the company. Thus, the order given by the CLB in terms of the position under the Companies Act, 1956 founds to be of no importance in context of the 2013 Act, as under the 2013 Act, law clearly specifies compliances to be done by the director who is resigning from the Company.
(If you have any query, you may reach out to the author at cs.santosh.com @gmail.com)