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Resignation of Director

Resignation of Director

Section 2(34) of the Companies Act 2013, defines a director as an individual who is appointed to the board of Directors of the company for carrying out the business of the company. Directors on behalf of the shareholders undertake the responsibility of handling the affairs of the company. 

Section 168 of the Companies Act, 2013 entails legal provisions for the resignation of the director in case any director of the company does not wish to continue with the responsibility of running the company. 

Sub-section 1 of this section lays that if a director wishes to resign from his office, he may do so by giving a notice in writing at the registered office of the company. It implies that if the director conveys his intention to resign orally, it may not be accepted. 

After submitting the notice of resignation, the director is under the obligation to forward his copy of the notice along with reasons for resignation to the Registrar of Companies (ROC) within 30 days from the date of resignation. Notice shall be forwarded in form DIR-11. 

Section 168 read with rule 15 of Companies (Appointment and qualification of directors), states that on receipt of notice of resignation, the board of directors shall immediately take note of it. The company shall file form DIR-12 to ROC within 30 days from receipt of the notice. The company shall also state the facts about the director’s resignation in the Director’s Report. Director’s report is prepared in accordance with section 134 of the Companies Act 2013. Director’s report is laid before the shareholders in the annual general meeting of the company. 

Legal Obligations for resigning director-

  • The director must give a written notice for expressing his desire to resign. 

  • The director must intimate ROC within 30 days, of the reasons for which he is resigning. (Form DIR-11)

  • The intention of the director must not be malicious. 

Legal Obligations for Company- 

  • The company must immediately take the notice into account.

  • The company shall give intimation to ROC in form DIR-12 within 30 days. 

  • The company shall state true facts about the resignation of the director in the Director’s Report. 

  • Director’s report shall be presented before shareholders at the annual general meeting of the company. 

Effective Date of Resignation- 

Pursuant to section 168, a notice of resignation shall become effective from the date when the notice has been received by the company or any other date as mentioned by the director in the notice, whichever is later. 

What is DIR-12?

The form DIR-12 is filed with the Ministry of Corporate Affairs (MCA) by the company. It is used for intimation about the appointment, reappointment, resignation, or removal of a director or KMP in a company. The form contains information about the person being appointed or removed, their background, their relationship with the company, and their consent to act as a director or KMP.

Liability of Resigning Director- 

The resigning director is liable, even after his resignation, for the offenses committed during his tenure when he efficiently handled the responsibilities of the company.

(Section 168)

What are the legal provisions in a situation where all the directors of the company resign/vacate the office at the same time?

Sub-section 3 of section 168 provides for a scenario where all the directors of the company either resign or vacate the office as per section 167. 

There may be two possible situations here. 

  • Company has a Promotor- If a company has a promotor, then he will appoint the required number of directors to hold the office till the general meeting of the company is held and directors are appointed by the said procedure. It may be noted that the term ‘general meeting’ shall include both an Annual general meeting and an extraordinary general meeting. ‘Promotor’ shall be construed as per section 2(69) of the Companies Act 2013. 

  • Company does not have a Promotor- In such a case, the central government will take charge to appoint the required number of directors, who will hold the office till the general meeting of the company is conducted and directors are appointed by the said procedure. 

SEBI LODR (Listing Obligations and Disclosure Requirements) regulations for the resignation of director- 

SEBI LODR Regulations are applicable only to the listed companies. Regulation 30 of SEBI LODR REGULATIONS 2015, mandates every listed company to make disclosures of all the material events and information. Events that are listed in Para A of Part A of Schedule 3 under these regulations are deemed to be material and hence must be disclosed as soon as possible. One such material event in this list is changing in the Director and KMP of the company. 

Therefore, regulation 30(6) requires the listed company to disclose the facts about the resignation of the director of the company to the stock exchange within 24 hours. An explanation for the delay must be enclosed in case the company made the disclosure after 24 hours. 

Regulation 46 mandates listed companies to have a website. Any such material information must be updated on the website of company within 2 working days. 

Resignation by Independent Director- 

Independent Director is a non-executive director on the board of listed companies. Independent directors on the board of listed companies ensure good corporate governance. Independent directors, like other directors, shall submit a written notice to the company expressing their desire to resign along with valid reasons behind the resignation.

It must be noted that Regulation 25 of SEBI LODR REGULATIONS provides that the independent director who has resigned from the board of a Listed company shall not be appointed as an executive director in the same company or its holding company, subsidiary company, associate company, or a company belonging to the same promotor group unless 1 year has elapsed from the effective date of such resignation.  

Does the resigning director need the company’s approval before resigning?

As per the legal provisions discussed above, resigning director is only required to submit a notice in writing to the company. The company, on the other hand, is under obligation to take note of resignation immediately. Therefore, Director does not need the approval of the company before expressing his willingness to resign. The leading case of M. Lakshminarayan v. Rasi Nidhi Ltd supports this argument. 

Conclusion- 

Any director of a company may resign at any time by giving written notice to the company in the prescribed form as discussed above. All these provisions are provided by the statute to ensure good corporate governance as a resignation by a director of a company may be viewed seriously by the investors and shareholders and may indicate the possibility of some malpractices being followed by the company. The director, thus, may resign by following the prescribed procedure as discussed above. 

Author:

Lavanya Tandon

Pursuing Company Secretary course from The Institute of Company Secretaries of India


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