[Opinion] Resignation of Directors – Reading between the Lines

[2023] 150 taxmann.com 412 (Article)

Introduction

Under Black’s Law Dictionary, the word ‘resignation’ connotes an act or an instance of surrendering or relinquishing, an office, right or claim. Section 168 of the Companies Act, 2013 (“the Act“)read with Companies (Appointment & Qualification of Directors) Rules, 2014(“the Rules“) states an individual resigning from the office of the directorship of the company. There was no express provision in the erstwhile Companies Act, 1956 governing the resignation of a director. Thus, the Courts took cognizance of the matters in dispute with respect to mandatory acceptance or approval of resignation. The moot point revolving around the issue whether resignation by a Director is a unilateral or bilateral act have been made depending upon the facts and circumstances of the case. There were a lot of disputes locked up within the walls of the judiciary. In this write-up, we will be discussing some of the case laws passed by the tribunals and courts of law. For the purpose of clarity in this article, the word ‘his’ shall include ‘her’, and the word ‘he’ shall include ‘she’ and vice-versa.

We had mentioned before that in the erstwhile law, there was no express provisions for resignation of a director. The genesis of provisions on resignation of director took birth in the Notes on Clauses to the Companies Bill, 2011 which took shape in the form of Section 168 as we read it today. The basic ingredients of the section are summarized as follows:

Section 161(1) of the Act read with Rule 15 of Appointment & Qualification of Directors Rules, provides that the director seeking to tender his resignation has to issue a notice in writing to the company. The company on receipt of the notice shall intimate the registrar in writing within thirty days from the date of receipt of notice of resignation from the director. The director who has resigned shall be liable even after his resignation for the offices which occurred during his tenure. We shall discuss each of these elements below.

Resignation must be in Writing

In the erstwhile law, there was no express provisions governing the resignation of directors. Ergo, the companies used their Articles of Association frame clauses to effectuate a non-litigious process of resignation. In Latchford Premier Cinema Ltd. v. Ennion and Paterson [1932] 2 Comp. Case 106 (CD), even if the Articles provided for written mode of resignation, resignation in verbal mode in the general mode, if accepted, will be considered tenable in the eyes of law. The Act has removed all confusions by making the resignation of a director from the company to be compulsory in writing.

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