Resignation of a Director - “ When shall it be effective?
Resignation - Meaning
Resignation can be defined as the spontaneous relinquishment of one's own right and it connotes the act of giving up or relinquishing the office. In the 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 its relinquishment.
In Palmer's Company Precedents, seventeenth edition, it is stated as follows:
"Even in the absence of any express power to resign, it is submitted that, unless the articles are specially framed, a director may by notice to the company resign his directorship. Directors 'are merely agents of the company' and an agent may determine his agency."
"A director can, subject to the articles, resign his office, and cannot withdraw his resignation without the company's consent. Notwithstanding an article providing for resignation by notice in writing, a director can resign by word of mouth. Where a director's resignation is accepted by the board he is not liable for a report made and dividend recommended after that time, though his resignation was not disclosed to the company, and he was actually named in the report as a director." {Buckley on the Companies Acts, 13th edition}
Provisions under companies Act
The Companies Act, 1956 (the Act) does not contain any provisions governing resignation of a director. Section 284 of the Act deals with the removal of director before the expiry of his period of office under the various conditions enumerated therein. Section 262 of the Act provides for filling of casual vacancies among directors if the office of any director appointed by the company in the general meeting is vacated before his term of office, which will expire in the normal course. Section 283 of the Act deals with the vacation of office by directors and the circumstances under which the office is vacated are mentioned therein. The word "resignation" occurs in Section 318(3)(a) and (b) of the Act and reads as follows:
"(3) No payment shall be made to a managing or other director in pursuance of sub-section (1), in the following case, namely: -
(a) Where the director resigns his office in view of the reconstruction of the company, or of its amalgamation with any other body corporate or bodies corporate, and is appointed as the managing director, managing agent manager or the other officer of the reconstructed company or of the body corporate resulting from the amalgamation;
(b) where the director resigns his office otherwise than on the reconstruction of the company or its amalgamation as aforesaid."
Issues for consideration
As the Act does not state the mode in which a director of a company could resign, when exactly will the said resignation come into effect and the consequences of such resignation?
Whether a director of a public or private limited company can resign unilaterally, and that too, by writing a letter to the Chairman of the said company or its Secretary?
Is it necessary for such a director to fill up Form No. 32 and is he obliged to give a notice or intimation to that effect to the Registrar of Companies ('RoC')?
Mode & Consequences of resignation
If there is any provision in the articles giving rights to a director to resign at any time, the resignation will take effect without any need for its acceptance by the board or the company in the general meeting. In the absence of any such provision relating to the resignation in the memorandum or articles of association, it is well settled that a resignation once made takes effect immediately when the intention to resign is made clear. In the absence of any provision in the articles the ordinary rule of the common law as regards resignation by an officer or agent must be followed namely, intimation by notice given either to the company or the board and acceptance of the same by them.
Where, however, the resignation says that it is to take effect immediately, acceptance is not necessary unless the articles or any provisions of law makes it necessary. Any form of resignation, whether oral or written, is sufficient provided the intention to resign is clear. It is, however, advisable that the resignation is in writing and that it 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 the director from any accountable or other liability which he may have incurred while in office.
In Abdul Huq v. Katpadi Industries Ltd. AIR 1960 Mad 482, 483, it was held that
"The net result of this analysis is that a director, who has submitted his resignation, will be deemed to have resigned from the date of his resignation, without prejudice, of course to his liabilities and obligation which has occurred up to that date and which he cannot evade by severing his connection with the company."
A Division Bench of the Delhi High Court in Mohan Chandra v. Institute of Chartered Accountants of India AIR 1972 Delhi 91, while considering the resignation tendered by the President of the Institute of Chartered Accountants, after elaborate discussion, observed "that if it was necessary in law that the resignation tendered by the President should be accepted by the council, then the obvious inference is that till the resignation is accepted, the President will have the right to withdraw the same."
In T. Murari v. State [1976] 46 Comp Cas 613 (Mad)], wherein the same question arose, it was held that even in the absence of a provision in respect of resignation under the Act (Central Act 1 of 1956) or under the articles of association of the company, the resignation tendered by a director or a managing director unequivocally in writing will take effect from the time when such resignation is tendered."
When a director has tendered his resignation, and the Board of directors has accepted it, and has acted on it, such director cannot be held liable for the liability incurred by the said company after the date of acceptance of his resignation, except the liability which has been incurred by him for purchase of shares of the said company and nothing more. Saumil Dilip Mehta v. State of Maharashtra (2002) 5 Comp LJ 183 (Bom)
In S. S. Lakshmana Pillai v. Registrar of Companies [1977] 47 Comp Cas 652 (Mad); [1977] T.L.N.J. 11, it was held that
"For the above-stated reasons and in the absence of any provision either in the Act or in the memorandum or articles, I am of the view that the director who had submitted his resignation would be deemed to have resigned from his office from the date of the submission of his resignation, when his intention is unequivocally expressed either orally or by a letter. A fortiori in the instant case, the petitioner by his letter dated December 4, 1972, has tendered his letter of resignation, resigning his directorship from the evening of December 4, 1972 and the said letter has been acknowledged by the first respondent, the Registrar of Companies and therefore I hold that the resignation had taken effect from December 4, 1972 and consequently the petitioner has ceased to hold the office from the evening of December 4, 1972."
Resignation - unilateral or bilateral
The act of relinquishment may take different forms or assume a unilateral or bilateral character, depending on the nature of the office and the conditions governing it. If the act of relinquishment is 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 any action and the relinquishment takes effect from the date of such communication where the resignation is intended to operate in praesenti. 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. In cases where the act of relinquishment is of a bilateral character, the communication of the intention to relinquish, by itself, would not be sufficient to result in relinquishment of the office and some action is required to be taken on such communication of the intention to relinquish, e.g. acceptance of the said request to relinquish the office, and in such a case the relinquishment does not become effective or operative till such action is taken. The nature of the office and the conditions governing it shall determine as to whether the act of relinquishment of an office is unilateral or bilateral in character.
Intimation to Registrar
Section 303 (2) of the companies Act, 1956 casts a legal obligation on the Company to inform the registrar of companies by Filing Form 32 giving particulars of changes, if any in the office of director. But this is only a consequential act to be performed by the company in obedience to the statutory provision. If such a form is filed with the Registrar of Companies, it is a proof of a director ceasing to be a director. But, it is not an act to be complied with in order to make a resignation valid. Therefore, as the resignation by a director relinquishing his office as such director is of a unilateral character, it comes into effect when the act of such resignation to relinquish the office is communicated to the Board. In law, the board of directors to whom the act of relinquishment is communicated is not required to take any action by way of accepting resignation and, therefore, the relinquishment takes effect from the date of such communication where the resignation is intended to operate in praesenti. In order to make the said resignation effective, it is not necessary that the Board should accept it. Whether the Board accepts the resignation or not if the resignation is intended to operate inpraesenti the resignation comes into effect when such intention to relinquish the office is communicated to the Board. In that view of the matter, once a resignation letter is submitted to the Board, the date of which the intention to relinquish is communicated to the Board, that is the date from which the director ceases to be a director of the company. Mother care (India) Ltd. v. Prof.. Ramaswamy P. Aiyar[2004] 60 CLA 249 (Kar.) it was held that the resignation of a director would become effective on and from the date it was tendered or submitted and from the articles of association of the company it would be clear that resignation of a director would be effective from the date it was tendered. In the case of resignation of a director there is no formality that the Board of directors should accept it before it becomes operative. (Glossop v. Glossop [1907] Ch. D 370)
The Bombay High Court has held that since there was no provision in the Act as to how resignation should be dealt with, it had to be considered with reference to the articles of association. Since the articles of association of the company in the said case provided how it should be dealt with, the immediate effect of resignation was that the person resigning would cease to be a director, without having to wait for "its acceptance by the Board of directors. (Pandurang Camotim Sancoalcar v. Suresft Prabhakar Prabhu [2003] 53 CLA 265)
In Dushyant D Anjaria, v. Wall Street Finance Ltd. [2001] 41 CLA, the Bombay High Court held that the resignation of a director would be effective from the date it was submitted, for the reason that that letter brings out clearly the intention of the person to resign. So far as other formalities like filling up Form 32 and sending it to the Registrar were concerned, it was for the company to comply with them in conformity with the provisions of section 303 of the Act. Where there was delay or negligence on the part of the company in intimating the registrar about the date of resignation, the director who had resigned could not be saddled with responsibility and liability for such delay.
In Ashok Muthanna v. Wipro Finance Ltd. [2001] 105 Comp Cas 203; [2001] 2 CTC 78, wherein M. Karpagavinayagam, J. has held as follows
"In regard to the first point in relation to the second petitioner V. G. Subbaraman (A-3), I find merit in the contention of learned counsel for the petitioner, inasmuch as Form No. 32 issued by the Registrar of Companies, which has been produced before this court and the same has not been disputed by counsel for the respondent-complainant, would reveal that the said second petitioner retired on March 28, 1998, itself and as such, he did not function as a director either on the date when the cheques were issued (i.e.) on January 23, 1999, or when the cause of action arose for non-payment of the cheque amount on receipt of the statutory notice on July 10, 1999.
Though the said document does not form part of the complaint and other records accompanied with the complaint, this can be taken into consideration by this court, since the contents of the said document, which is a public document, is not disputed by learned counsel for the respondent.
In S.B. Shankar V. Amman Steel Corporation.2002-(051)-CLA -0341 –MAD, the court held that I am in entire agreement with the views expressed by the learned judges of this court in the decisions referred to by learned counsel for the petitioner. Form No. 32 issued by the Registrar of Companies is a public document and coupled with the annual report published by the company can be taken into consideration by this court and it shows that the petitioner resigned as director of the company on October 4, 1999 and he ceased to be on the board of the company from that date. All the cheques pertaining to the cases were drawn between the period February 3, 2000, and February 15, 2000 and during that period, the petitioner did not function as chairman and director of the first accused company and he was also not in charge of and responsible for the affairs of the company when the cause of action arose for non-payment of the cheque amounts on receipt of respective statutory notices. Hence the proceedings in all the cases as against the petitioner are liable to be quashed.
It is clear that the filling in of the said Form and the giving of due intimation and information to the Registrar of Companies is the duty of the Company Secretary/director and not of the individual director resigning from office. Suffice it to say that what he has to do is to send in writing a letter informing either the Chairman or the Secretary of the company, as the case may be, of his intention to resign from the post of the director of the said company. Thereafter, the said letter has to be moved at the meeting of the directors of the company, it may be ordinary meeting or may be extraordinary or special meeting, as the case may be, and the Board of directors have to take a decision whether the Board is accepting his resignation or not. Intimation should be sent to such director and after such resolution is passed, the company secretary is under the obligation to comply with the legal formalities for giving a finishing touch to the resolution, which has been passed in the said meeting of the Board of directors. It is for the Company Secretary to fill in the forms as prescribed and to give due information and intimation to the RoC, as the law requires. Thereafter, it has to be so mentioned in all prescribed registers of the company, accounts and balance sheet of the company, and thereafter, the said fact is to be brought to the notice of the members of the company as early as possible, and at the latest, in annual general meeting.
