Resignation of Director™ – A Controversy

Himanshu Setia, 3rd year student, Symbisois Law School,

Noida (Constituent of Symbiosis International University, Pune)

Email id- (himanshusetiaO125@rediffmail.com)

˜Resignation of Director™ – A Controversy[1]

 INTRODUCTION

The Companies Act, 1956 (hereinafter referred to as ˜Act™) does not contain any provision relating to resignation of director. The word ˜resignation™ means ˜relinquishment of ones right™. As such there is no specific provision, the next alternative is to refer the Articles of Association of the company and follow the procedure, if it is prescribed there. But in the common parlance, companies do not have any provision related to resignation of director in the Articles of Association. Here, the controversy of resignation of director actually starts because it is a grey area. Now, the question arises what will be the procedure, if a director resigns?

Due to this, it has given rise to many controversies. As the Act is silent in terms of resignation of director, so the best way out is to follow the ordinary rule of common law as regards resignation by an officer or agent. Director should intimate regarding the resignation by notice to the company or the Board and as an extra precaution he may inform to the Registrar of Companies or to the SEBI (Securities and Exchange Board of India) and Stock Exchange in case when the company™s securities are listed (Refer Listing Agreement, Clause 30) or publish an advertisement in a leading newspaper. But, one thing is to be noticed here, that resignation will not relieve the director from any accountable or liability incurred while in office.

 DIRECTOR™S RESIGNATION: UNILATERAL OR BILATERAL:

AN INSIGHT

Terms of the appointment of the director and Articles of Association of the company has to be examined to determine when a director can resign from his office unilaterally or bilaterally. The Madras High Court in T Murari v. State of Tamil Nadu (1976) 46 Com Cases, 61 (Mad) held that:

In the absence of a provision in respect of resignation under the Act or under the articles of association of the company, the resignation tendered by a director or Managing Director unequivocally in writing will take effect from the time when such resignation is tendered.

In the case of S.S. Lakshmana Pillai v. ROC (1977) 47 Com Cases, 652 (Mad) the Madras High Court held

that:

–          Where a resignation states that it is to take effect on acceptance or the Articles so require, acceptance is necessary to end the tenure of office.

–          Where, however, the resignations says that it is take effect immediately, acceptance is not necessary, unless the articles or any provision of law makes it necessary. 

–          Any form of resignation, whether oral or written, is sufficient, provided that the intention to resign is clear.

–          It is, however, advisable that the resignation is in writing and also indicates the time when it is to take effect, so that it may serve as a record of reference in case of controversy. In the absence of any indication otherwise, a resignation takes effect immediately. 

–          Resignation will not, however, relieve him from any accountability or other liability which he may have incurred while in office

By following the above mentioned judgments, one can say/assume that the act of resignation of director is unilateral or bilateral totally depends upon the nature of the office of the director and conditions governing it.

But if we follow the decision of Bombay High Court in the year 2002 in the case of Saumil Dilip Mitra v. State of Maharashtra (2002) 48 CLA 21, it was clearly held that:

A director of any company can tender his resignation unilaterally and without filling in Form No. 32 and without sending a notice to the Registrar of Companies. Filling in Form No. 32 and the giving of intimation to the Registrar is the duty of the company secretary and not of the resigning director. A director who intends to resign has to send in writing a letter informing either the chairman or the secretary, his intention to resign from the post of the director. Thereafter, the said letter has to be moved in the meeting of the directors; it may be ordinary meeting or may be extraordinary or special meeting.

  • Now, the question arises, if the Board does not accept the resignation of the director, than what will happen?

This means that the director is being forced to not to resign from his post. Now, if we follow the Bombay High Court judgment in the above mentioned case and the Patna High Court judgment in the case of Registrar of Companies v. Bihar Investment Trust Ltd. [1978] 48 Comp Cas 579 (Pat)  , it is clear that the director™s resignation is unilateral because it has been held that:

a)      it™s an inherent right of any person to tender resignation and he cannot be compelled against his wishes to continue in the office for a day longer than he desires,

b)      an intimation should be sent to the director and after such resolution is passed, it™s the job of the of the Company Secretary to fulfil the legal formalities i.e. he has to fill in the form as prescribed and intimate to the Registrar of Companies according to the law.

c)      Further, he has to mention it in all the prescribed registers, balance sheet and accounts and the same is to be informed to the members of the company at the earliest possible, may be in the next Annual General Meeting.

PROCEDURAL FORMALITIES)

  • Filing of e-form 32:

To be filed with the ROC within 30 days from the date of vacation. If acceptance of resignation is necessary under the AOA, than the resignation is to be placed before the Board at the next Board Meeting. The form should be filed within 30 days of the Board Meeting of acceptance of the resignation. [Section 303(2)]

  • Service Contract of the Director:

These contracts are basically with managing director or whole time director, the terms and conditions mentioned in the contract must be complied with.

  • Intimate the Director:

The concerned director must be informed about the effective date of resignation.

  • Intimate to Stock Exchange:

Where the securities of the company are listed on the Stock Exchange than intimation is required to be sent to the Stock Exchange about the cessation of the office of director.

  • Entries in prescribed registers, accounts and balance sheets:

The date on which the director ceased to be a director, shall be entered into the register and further if any change required in accounts and balance sheet, than it shall also be made.

NEW COMPANIES BILL, 2012:

RESIGNATION CLAUSE

As we have seen that, as such there is no specific provision regarding the resignation of director in the existing Companies Act, 1956. But now the resignation clause (Clause 168) has been brought under the new Companies Bill, 2012 which has recently been passed by the Lok Sabha on 18.12.12.

The above mentioned clause states that a director may resign from his office by notice in writing.

Board on receipt of such notice will:-

a)      Take note of the same,

b)      Intimate the Registrar,

c)      Place the resignation in the subsequent general meeting, and

d)     Director shall forward the copy of the resignation with detailed reasons to the Registrar

The notice will become effective when it is received by the company or on the date specified by the director in the notice, whichever is later.

CONCLUSION

As we have seen that there is no such provision in the existing Companies Act, 1956, which governs resignation of director.  From the cases cited above, it can be concluded that

–          director˜s resignation is unilateral,

–          there is a duty on the part of the company to fulfil the legal formalities,

–          the directors cannot be held responsible/liable for defaults and breaches made by the company subsequent to their resignations from the post of directorships, and

–          resignation will not relieve the directors from any accountable or liability incurred while in office.

Hence, the resignations of director will be in accordance with common laws because of no specific provisions.

Let us hope that the New Companies Bill, 2012 will soon become an Act and replace the existing Companies Act, 1956. Further, this will lead to the end of controversies and litigations of resignation of director, as the resignation clause has been brought under the said bill.

BIBLIOGRAPHY

PRIMARY SOURCE

v  ACTS

a)      The Companies Act, 1956

b)      The Securities and Exchange Board of India Act, 1992

SECONDARY SOURCE

v  BOOKS

a)      N.D. Kapoor, Elements Of Company Law (Sultan Chand & Sons, New Delhi, 28th edn., 2012).

b)      A Ramaiya, Guide To The Companies Act, (Lexis Nexis Butterworths Wadhwa Nagpur, Part 2, 17th edn., 2010)

c)      A.K. Majumdar and Dr. G.K. Kapoor, Taxmann™s Company Law, (Taxman Publications (P.) Ltd., 15th edn., 2012)

d)     KR Chandratre, Company Secretarial Practice Manual, (Lexis Nexis Butterworths Wadhwa Nagpur, Volume One, Second edn., 2008)

v  ARTICLES

Dr. KR Chandratre (Past President, ICSI), Resignation of Director: Controversies Galore!, [2002] 51 CLA (Mag.) 61 The Nitty- Gritty of Corporate Law.

WEBSITES

  • www.mca.gov.in
  • www.manupatra.com
  • www.sebi.gov.in
  • www.icsi.in
  • www.icia.org.in
  • www.claonline.in

[1] Written by Himanshu Seria, 3rd year student, Symbisois Law School, Noida (Constituent of Symbiosis International University, Pune)

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