Director Resignation

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

14 May 2011 Is it required to pass a resolution to effect resignation of director? Or he can resign just with a resignation letter.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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14 May 2011 Resolution to be passed in board meeting and Form 32 to be filed with ROC within 30 days.

Querist : Anonymous

Querist : Anonymous (Querist)

14 May 2011 Can you provide me the exact section?

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CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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15 May 2011 The Companies Act does not have any provision governing the resignation of a Director. Section 284 of the Act provides for removal of a Director in a General Meeting, whereas Section 283 deals with vacation of office in certain specific circumstances. Nothing has been mentioned in the statute with reference to resignation of a Director or its acceptance by the Board of Directors; however a Director is merely an agent and may determine his agency.

In absence of any specific provision in the statute, the resignation of a Director should be dealt with reference to Articles of Association of the Company. Hence subject to the articles of association, resignation of a Director is effective from the date of communication of his intention to the Company or the Board of Directors of the Company.

Articles containing provision for resignation of Director

If the articles contains a provision for resignation of Director, then the said procedure has to be complied accordingly. This contention is further supported by the following case law: In Pandurang Camotim Sancoalcar v. Suresft Prabhakar Prabhu [2003] 53 CLA 265, the Bombay High court has held that 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’.

Articles not containing provision for resignation of Director

In the absence of the any provision in memorandum or articles, it is settled that the resignation of Director is effective immediately when the intention to resign is made clear to the Company.

Conclusion

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.”

The filing of necessary forms with the Registrar of Companies with respect to the resignation of the Director has to be done by the Company as required under Section 303(2).

Querist : Anonymous

Querist : Anonymous (Querist)

15 May 2011 This means that resolution is not always necessary. Right?

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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15 May 2011 Resolution is always necessary. And after passing the resolution in Board meeting filing of form 32 within 30 days is also necessary.

Querist : Anonymous

Querist : Anonymous (Querist)

15 May 2011 I am looking for that particular provision which necessitates the resolution

udit sharma

udit sharma (Expert)
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16 May 2011 I completely disagree with the expert, no need of a resolution to effect the resignation of Director. If the resignation of Director is subject to the approval of the Board, then only a Board resolution is required. In other case, resignation of Director is effective from the date mentioned in the resignation letter.

Resignation of Director must be noted at the Board Meeting.

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CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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16 May 2011 "In the absence of the any provision in memorandum or articles, it is settled that the resignation of Director is effective immediately when the intention to resign is made clear to the Company."

This is already mentioned here above.

Resolution is required for the verification part in form 32 without passing the resolution in BM form 32 can not be filed.

Please correct me if i am wrong.

udit sharma

udit sharma (Expert)
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16 May 2011 Dear Expert!

Regarding the verification part, there is no need for a seperate Board Resolution every time an E-form is to be filed. You can pass a General Board Resolution giving the authority to affix Digital Signature and upload E-forms on MCA 21 Portal.

Further, in the query, querist has asked that whether the resigntaion shall be effective as an when the Board Resolution is passed and in my opinion resignation shall be effective from the date of resignation letter.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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16 May 2011 Dear Expert Please see my below replies which is posted earlier---

As regards resolution aspect is it mentioned somewhere that it is not required. In general practice a Board Meeting is convened and the Resignation letter is placed before the board for acceptance.

Articles containing provision for resignation of Director

If the articles contains a provision for resignation of Director, then the said procedure has to be complied accordingly. This contention is further supported by the following case law: In Pandurang Camotim Sancoalcar v. Suresft Prabhakar Prabhu [2003] 53 CLA 265, the Bombay High court has held that 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’.

Articles not containing provision for resignation of Director

In the absence of the any provision in memorandum or articles, it is settled that the resignation of Director is effective immediately when the intention to resign is made clear to the Company.

Conclusion

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.”

Also see in this regard----

SAUMIL DILIP MEHTA V.State of Maharastra (2003):

In this case the High Court framed three questions for consideration of this case which are as follows:

a. Can a Director of a public or private limited company resign unilaterally by writing a letter to the Chairman or Secretary of the Company?

b. Should he fill up Form No. 32 and sent it to Registrar of Company?

c. Is the resigning director obliged to give intimation about his resignation to the Registrar of Companies? Whose duty is it to take follow up action?

The court held that when a director has tendered his resignation and the Board of Directors has accepted it such director cannot be held for liabilities incurred by the company after the date of acceptance of his resignation, except the liability incurred by him for purchase of company's shares and nothing more.

A director of a public company or a private limited company can tender his resignation unilaterally, without filing Form 32 and without sending notice to the Registrar of Companies. All that the director has to do is to send in writing a letter informing either the Chairman or the Secretary of the Company of his intention to resign from the office of director. Filling in Form 32 and giving intimation to the Registrar is the duty of the Company Secretary and not of the director. Thereafter the letter has to be placed before the meeting of directors-ordinary meeting, extraordinary or special meeting, as the case may be - and the board of directors have to take decision whether to accept or not to accept the resignation. After passing the resolution intimation should be sent to the director. The Company Secretary is under an obligation to comply with legal formalities. Thereafter the fact of resignation and its acceptance should be recorded in the concerned registers. Later it must be brought to the notice of members of the company as early as possible, at least in the annual general meeting.

udit sharma

udit sharma (Expert)
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16 May 2011 Expert!

Resignation letter is placed before the Board only for noting and not for confirmation/approval to resignation of Director, when the resignation is not subject to acceptance of Board......

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Jayashree S Iyer

Jayashree S Iyer (Expert)
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17 May 2011 Agree with Udit.

Though it's not mandatory to place the resignation letter before the Board for its acceptance, for better corporate governance the same is generally placed before the Board so that all Board Members can note the same. This procedure is followed by many companies who place the resignation letter before the Board and a resolution is passed accepting the resignation and thanking the director for his services.

As regards verification part, generally the CS or a director is given general authority to authenticate all e-forms required to be filed with mca and hence only for this purpose, placing of resignation before the Board is not required.