Resignation of a Director: The Grey Area in Company Law

The article discusse that the passing of the Companies Act, 2013 has ended numerous controversies regarding resignation as it incorporated the principles laid in the case of Saumil Dilip Mitra v. State of Maharshtra and Ors. and many others that followed.
Estimated Reading Time: 7 minutes

Introduction

The Companies Act, 1956 did not contain any provision relating to the resignation of a director. Resignation can be defined as the relinquishment of one’s right. Due to the lack of a legal provision, the next option was to adhere to the Articles of Association and follow the procedures prescribed. However, most companies did not have provisions dealing with resignation. Hence, numerous controversies surrounding the subject matter cropped up and were left in a grey area.

In 2002, the Bombay High Court,in this case,held that a Director can tender his resignation unilaterally. The Act states that a form is to be filled to intimate the Registar of Companies about his resignation. This form indicates the status of the Directors.The director is not required to file Form No. 32 or intimate about the same to the Registrar of Companies. This duty is bestowed upon the company secretary to give intimation about resignation to the registrar and file Form No. 32. If a Director intends to resign, he is obliged to write a letter of resignation to the Chairman or the company secretary. The Chairman will subsequently move the resignation in a meeting of directors. 

Factual Background

The facts of the case state thata Revenue Recovery Certificate (RRC) was under execution regarding the personal property of the Saumil Mitra, one of the directors of M/s ArihantAgroProducts Limited. Under the Revenue Recvoery Act[1], when an arrear of land revenue, or a sum recoverable as a part of it, is payable to a Collector by a defaulter having property in a district other than that in whichthe sum is payable, the Collector may send a certificate for the same.

A notice was given by the District Collector to M/s ArihantAgro Products Ltd.,informing them about the claim made by the Deputy Commissioner of Hyderabadthat the land belonging to Saumil D. Mehta was to be attached and the revenue due and payable till date has not been paid for the years 1988-1989 to 1992-1993,accumulating up to Rs. 22,30,316 paise. In addition, a notice fee of Rs. 2.00 paise aggregating to Rs. 22,30,318 paise was to be paid by M/s ArihantAgro Products Ltd., and SaumilMitra. The office of the District Collector informed him to pay the amount within 20 days of the receipt of the notice and in case of failureto pay or deposit it in the office of the Collector, the same would be recovered by attaching and selling the properties and the proceeds would be deposited as realized in the Collector’s office. Subsequently, a notice was issued under Section 267 of Maharashtra Land Revenue Code demanding Rs. 66,07,453 thereby giving rise to this petition.

Issues

  1. Whether a director of a public/private limited company can resign unilaterally?[2]
  2. Whether a director must fileFormNo. 32 and notify the Registrar of Companies?[3]
  3. Whether the director can retire without complying with the above requirement?[4]

Arguments from the parties

Arguments of the Petitioner

The petitioner’s side submitted that Saumil had resigned from the post of Director of M/s ArihantAgro Products Ltd., before3rd January, 1995 and this was indicated by his letter addressed to the Chairman. On numerous occasions, Saumil had brought this to the notice of the Chairman as well. At the 8th Annual General Meeting of the company, his resignation was accepted and a note to that effect was published and printed in the balance sheet of the company. Therefore, the facts clearly show that he had already resigned from the post of director of the company and that the recovering authority was not entitled to attach his personal or private property which had no concern with the assets and liabilities of the company. He pleaded that without giving him the opportunity of being heard, his private and personal property were attached by the recovery authority.The process was asked to be quashed as it infringes the fundamental rights guaranteed under the Constitution.

Arguments of the Respondents

On behalf of the respondents, it was submitted that the resignation had not been tendered by Saumil by filling in Form 32. Moreover, the resignation was not tendered according to Section 303 (2) of the Act.[5]It was further contended that since no legal procedures have been complied with, the petitioner could not seek the protection of this Court. The respondents argued that a notice was sent to the local address of the petitioner and it was seen by his son who stated that he did not understand the contents of the notice and did not inform the petitioner of the same.It was argued that the petitioner had the duty to approach the recovery authority and make appropriate submissions for relief.

Summary of the decision and judgement

When a director has decided to end his tenure by resignation and the Board of Directors has accepted and acted on it, he cannot be held liable for the liability incurred by the company after the date of acceptance except in cases where the liability has been incurred by him for purchase of shares of the company.

It was imperative for the authority executing RRC to give a notice of its intention to execute it against the petitioner and his property and to give the petitioner the opportunity to be heard. Theauthority is not legally competent to attach his personal or private property or put it to auction to his prejudice. Since the notice had been not delivered to the petitioner on the account of his son being unable to understand its contents, he cannot be expected to approach the authority.

The RRC which intended to attach the personal and individual property of the petitioner was quashed.The Sales Tax Authority of Andhra Pradesh Government was given the liberty to choose the appropriate legal recourse for the purpose of recovering its dues from the company by following a due process established by law. Lastly, the petitioner was to be given a chance to be heard and pose his grievances.

Analysis

The main points of contention in this case were whether a director of a public or private limited company can resign unilaterally by writing a letter to the chairmanor secretary.

In light of the provisions of the Companies Act and the relevant articles of the Constitution, a director of a company can tender his resignation unilaterally, without filling in Form 32 or without sending a notice to the Registrar of Companies. This case laid out that this duty of filling in the form and giving due intimation to the Registrar of Companies is the duty of the Company Secretary and not the director himself. Therefore, the director’s duty is to send a letter informing the Chairman or the Secretary of the Companyhis intention to resign from the post. Consequently, the letter has to be moved in a meeting of the directors of the company, be it an ordinary, extra-ordinary or special meeting, subsequent to which the Board of Directors can decide whether to accept his resignation or not. Thereafter, an intimation is to be sent to the director and a resolution to this effect is to be passed. It is for the Company Secretary to fill in the forms and give due notice and intimation to the Registrar of Companies, as prescribed under the law. Adding the finishing touch to the process, the resignation has to be mentioned in all the registers of the company, accounts and balance sheet and brought to the notice of the members of the company in the annual general meeting.

Conclusion

The position under the new Act regarding the resignation of a director has been simplified. Section 168 of the Companies Act, 2013 lays down the procedure for the resignation of the director of a company.[6] A director of a company can resign by giving notice to the company. The Board takes notice after receiving the receipt of resignation and passes a board resolution to that effect. The company has to intimate the Registrar about the resignation of a director by filing Form No. DIR-12 within 30 days of the resignation.[7] The Company has the duty to maintain a report of directors and take note of resignations immediately after the general meeting of the company. The director has to submit a copy of his resignation as well as the reasons for the same within 30 days. While the acceptance of the resignation is not necessary, the Board has to take a note of it. The resignation is said to take effect from the date on which the notice is received by the company. The director is held liable, even after his tenure, for the offences committed by him during his tenure. The passing of the Companies Act, 2013 has ended numerous controversies regarding resignation as it incorporated the principles laid in this case and many others that followed.

Also readStatutory Company under the Companies Act, 2013


[1] The Revenue Recovery Act, 1890, No.1 of 1890, Section 3.

[2]SaumilDilip Mitra v. State of Maharashtra &Ors., AIR 2002 Bom 194, para 6.

[3]Id.

[4]Id.

[5]The Companies Act, 1956, No. 1, Acts of Parliament, 1956, Section 303(2).

[6]The Companies Act, 2013, No. 18, Acts of Parliament, 2013, Section 168.

[7]Companies (Appointment and Qualification of Directors) Rules, 2014, Gen. S.R. & O. 259, Rule 15.

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