Applicable Provision:

The provision for the resignation of the director is given under Chapter XI (Eleven); Section 168 of the Companies Act 2013 ( Act); and Rule 15 & 16 of the Companies (Appointment and Qualification of Directors ) Rule 2014 ( Rule).

Introduction 

A director can resign from the office of director by tendering a written notice to the company. Whether the company accepts the resignation or not, is of no grave concern as a resignation by a director is a unilateral act unless otherwise specified in the Article of Association of the Company. So far the mode of notice is concerned, a director can tender his resignation by a post or/and via e-mail.

The erstwhile Companies Act 1956 had no specific provision for the resignation of director, and in the absence of any such provision, reference was made to the Article of Association of the respective company.

The Companies Act 2013, on the contrary clearly stipulates the procedure through which a director can resign from the office of director. It enables director to resign  from the office of director by giving notice in writing to the Company and, may in addition forward the resignation notice to the Registrar of Companies in form DIR-11. The form DIR-11 is only information by a resigning director to RoC and its filing will not result in recording change of director’s status in the register of directors.

Notice by the Director

Section 168 of the Act gives ‘ease of exit’ to the director by tendering resignation to the company. It is optional at the end of the director to forward a copy of his resignation, in form DIR -11, to the Registrar of Companies. However, the company on receipt of resignation notice shall, in mandate, intimate the Registrar of Companies in form DIR 12. This is by Companies (Amendment) Act, 2017 (effective from 7th May 2018), the Government amended the first proviso to sub-section (1) of Section 168 whereby it was made optional for a director to forward the copy of the resignation to the Registrar, by substituting the word “director may also forward” for the word “director shall also forward”.

Further, in author’s personal view the director resigning may not require to give any detailed reason to the company for his resignation. However, if the director files his/her resignation to the Registrar of Companies, then [s]he will have to enclosed a detailed reason with the notice of resignation.

Effective Date

The act of resignation is a unilateral act. It becomes effective from the time when the intention to relinquish the office as a Director is communicated.

Therefore, it is imperative for a resigning director to be clear with the date from which his/her resignation will be considered effective. Sub-Section 2 of section 168 signifies two dates that would be considered as the effective date for the purpose of resignation:

  • The date on which the notice is received by the company; or
  • The date specified by the director in the notice,

whichever is later. 

If the reader is a little confused at this point, as to what would be the effective date of the notice,  take the following case for instance – The notice is received by the Company on 25th April whereas the effective date mentioned by the director in the notice is 15th April ?

In such case, the later date i.e. 25th April shall be taken as an effective date. For those who are new to the legal world, the effective date becomes important for the purpose of identifying the liability of the director at a juncture when the company has committed an offence. The board of directors being the brain of the company, is held liable if it does not act in good faith and commits an offence. Thus, if the resigning director was an effective director at the time when the offence was committed i.e. anytime before 25th April then (s)he will be held liable for such offence.

Therefore, the resigning director will continue to be liable for the offences which occurred during his tenure and not for an offence occurred post to the effective date of resignation.

It is to be noted that in an exceptional case where a corporate insolvency resolution process has been initiated against the company /corporate debtor under Insolvency & Bankruptcy Code (“Code”), the Interim Resolution Professional can demand assistance and co-operation of the erstwhile director in managing the affairs of the company under Sec 19 of the Code.

Procedural compliance to be followed by the Company

Once a director gives notice to the Company and the moment company receives the same, the Board of the Company shall:

1. take a note of the same and intimate the Registrar of Companies in form DIR-12 and make the disclosure of the resignation on the company’s website, within a period of 30 days; and

2. place the fact of such resignation in the report of directors in the following general meeting.

Additionally, a company shall update the changes in the Register of Directors and Key Managerial Personnel, in accordance with Section 170 of the Act.

Resignation by Foreign Director

Rule 16 provides that in case a company has already filed Form DIR-12 with the Registrar under rule 15, a foreign director of such company resigning from his office may authorize in writing a practicing chartered account or cost accountant in practice or company secretary in practice or any other resident director of the company to sign Form DIR-11 and file the same on his behalf intimating the reasons for the resignation.

Resignation by Nominee Director

A nominated director represents the interest of the company who nominated him/her and his/her continuation is subject to pleasure of the nominating company, therefore a Nominee Director, is primarily responsible for the company which nominated him. He may send his resignation to the company which nominated him and even without any such resignation letter, the company which nominated him will be at liberty to withdraw his nomination. In either event, if a resignation letter is submitted by a Nominee Director to the company which nominated him, thereafter it is for that company to act upon the same and to withdraw the nomination of the Nominee Director. As there is no provision for resignation by the Director, there is no provision for withdrawal also in the Companies Act.

Conclusion

The Act enables a director to resign  from the office of director by giving notice in writing to the Company. There could be a case when a company does not notify the resignation of director in Form DIR-12 within the prescribed period. In such situation, the director has the facility to file Form DIR-11  to intimate RoC of his resignation.  However,  the status of the Director in the company will be changed to ‘Resigned’ only when the company files the Form DIR-12.

Note:

1. https://www.mca.gov.in/Ministry/pdf/Report_Companies_Law_Committee_01022016.pdf

2. In re. Dr. J.S. Gambhir vs millennium health institute and diagnostics Pvt. Ltd.- https://indiankanoon.org/doc/54669565/

3. Proviso to sub-section (2) of Section 168 of the Companies Act 2013- http://ebook.mca.gov.in/default.aspx

4. In Renuka Ramanath vs Yes Bank Limited – https://indiankanoon.org/doc/152685987/

Author Bio

Qualification: CS
Company: Himanshu Kohli & Associates
Location: NEW DELHI, Delhi, India
Member Since: 21 Apr 2020 | Total Posts: 3
The firm, Himanshu Kohli & Associates, provides one stop shop legal service with respect to regulatory Compliance, Secretarial, Transactional and Advisory services on the issues/matters concerning to corporate, securities, foreign exchange and allied laws. The firm, is led by Mr. Himanshu Kohli View Full Profile

My Published Posts

More Under Company Law

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

June 2021
M T W T F S S
 123456
78910111213
14151617181920
21222324252627
282930