Resignation of Director & Applicable Provisions of Companies Act, 2013

It is a well-known fact that, a Company is an artificial person and act through human beings, which are appointed according to provisions of the Companies Act, 2013. The person appointed to carry on business of a company are called director. A director will act as an agent of the Company and their collective authority is called Board of Directors. Board of Directors are the supreme body of a company except shareholders as its owners.

Sometime a director being aggrieved or due to his personal reason, wants to quit his position as director in a company. He through a notice or letter of resignation relinquish his office in the Company.

Wikipedia: “Resignation is the formal act of giving up or quitting one’s office or position. A resignation can occur when a person holding a position gained by election or appointment steps down.”

Collins Dictionary: “resignation is a formal statement of your intention to leave a job or position”.

SOME DECIDED CASES ON RESIGNATION;

The Supreme Court of India in Moti Ram Vs. Param Dev AIR 1993 SC 1662 set out meaning of resignation as;

“Resignation means the spontaneous relinquishment of one’s own right and in relation to an office, it connotes the act of giving up or relinquishing the office. It has been held that in general juristic sense, in order to constitute a complete and operative resignation there must be the intention to give up or relinquish the office and the concomitant act of relinquishment. It has also been observed that the act of relinquishment may take different forms or assume a unilateral or bilateral character, depending on nature of the offence and conditions governing it.”

Union of India Vs. Gopal Chandra Mishra, AIR (1978) SC 694 it was held that if the act of relinquishment id of unilateral character, it comes into effect when such act indicating the intention to relinquish the office is communicated to the competent authority. The authority to whom the act of relinquishment is communicated is not required to take action and relinquishment takes effect from the date of such communication where the resignation is intended to operate in praesenti.

Section 168 of the Companies Act, 2013 provides 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 asmay be prescribed and shall also place the fact of such resignation in the report of directorslaid in the immediately following general meeting by the company:

Provided that a director shall also forward a copy of his resignation along withdetailed reasons for the resignation to the Registrar within thirty days of resignation in suchmanner as may be prescribed.

(2) The resignation of a director shall take effect from the date on which the notice isreceived by the company or the date, if any, specified by the director in the notice, whicheveris later:

Provided that the director who has resigned shall be liable even after his resignationfor the offences which occurred during his tenure.

(3) Where all the directors of a company resign from their offices, or vacate theiroffices under section 167, the promoter or, in his absence, the Central Government shallappoint the required number of directors who shall hold office till the directors are appointedby the company in general meeting.

A director who is retiring, required to file intimation of his retirement with ROC, with reason of his retirement, within prescribed period. The resignation should be in writing and oral resignation will not do.

MODE OF RESIGNATION;

The resignation must be in writing. A retiring director should mention reasons of his decision for resignation. The letter of resignation should be clearly mentioned the date from which the resignation takes effect. Otherwise the date of receipt of letter will be considered as date of resignation. In case of Whole Time Directors or Managing Directors the process of resignation will be mentioned in terms of appointment of Letter of Appointment.

PROCESS OF APPROVAL

Following conditions are to be complied with;

a) Board to note the resignation submitted by a director;

b) Company should inform ROC by filing return of resignation DIR-12, within 30 days from the date of resignation of a director;

c) Company to post this information on its website;

d) Company should mention details of resignation in its Board Report;

e) A retiring director is also required to intimate his resignation from company with the ROC by filing DIR-11, within a period of 30 days, with reasons of his resignation.

RESIGNATION WHEN TO TAKE EFFECT;

The letter of resignation should be clearly mentioned the date from which the resignation takes effect. Otherwise the date of receipt of letter will be considered as date of resignation. In case of Whole Time Directors or Managing Directors the process of resignation will be mentioned in terms of appointment of Letter of Appointment.

A director however will be liable even after his resignation for actions of the Company which occurred during his tenure as director prior to the date of resignation.

SCOPE OF SECTION 168; lays down the procedure for resignation of directors. It is to be noted that in the absence of such a provision in the Companies Act, 1956, it was left to the courts to apply the common law regarding resignation of an officer/agent after taking into due account any provisions in this regard provided in Articles of Association of the Company.

Glossop Vs. Glossp (1907) 2Ch 370 & T. Murari Vs. State(1976) 46 Com Cases 613(Mad) it has been laid down that the resignation of a director shall take effect from the date on which the notice is received by the company or from any other date as may be specified by the director in his resignation letter, whichever is later. Thus, it is clear that mere receipt of notice of resignation by the company is enough for registration to be effective and the acceptance of resignation by the company is not necessary. There was not specific provision on resignation of directors in the Companies Act, 1956 and hence it was generally governed by clauses in Article of Association of Companies.

The Companies Act, 2013 through Section 168 clearly lays down requirement for resignation  , by virtue of Section 6 of the Companies Act, 2013 , which provides that the provisions of the Act, 2013 shall overrides MOA and AOA, any provisions of AOA to the extent that it  is repugnant to provisions of the Act will become void.

Section 168(2) provides that even after his resignation, a director shall be liable for all offences that took place during his tenure. In order to take care of the rare situations, when all directors of the company resign from their office, Section 168(3) empowers the promoter and in his absence the Central Government to appoint the required number of directors who would remain in office till new directors are appointed by the company in its General Meeting.

WITHDRAWAL OF RESIGNATION:

The Companies Act, 1956 was silent on withdrawal of resignation by a director, the director should be able to withdraw his resignation any time before it takes effect as laid down in;

Union of India Vs. Gopal Chandra Mishra ,AIR(1978)SC 694 it was held that “ It will bear repetition that the general principal is that in the absence of a legal, contractual or constitutional bar, a prospective resignation can be withdrawn at any time before it becomes effective, and it becomes effective when it operates to terminate the employment or the office/tenure of the resignor.”

A resignation may also be prospective to be operative from a future date and in that event,it would take effect from the date indicated therein and not from the date of communication.

Thus, at least in cases where a future date has been specified by a director in his resignation letter, he would have right to withdraw the same any time before such date.

Conclusion: Provisions of Section 168 of the Companies Act, 2013 lays down procedure of resignation and its acceptance by Company. It provides that resignation must be in writing and same should be communicated with the Company. The resignation shall be effective from the date of receipt of the same by Company of future date if any written in the resignation letter. But resignation by a director does not immune him from acts done during his tenure of directorship.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. Author assume no responsibility for the consequences of the use of such information.