Directors resignation whether effective only when approved by Board by passing resolution? Analysis of CLB Judgment

Company Law Board (CLB) Principal Bench, New Delhi in its recent judgment has held that whenever a company is required to file any return, account or other document then it has to necessarily pass a Board Resolution to send such document to the registrar of Companies . Unless the company has passed any resolution, accepting document or return, it can not be said that the company has committed default in filing of form before the Registrar.

The CLB delivered this judgment in context of the petitioner seeking a direction to MCA and RoC to remove his name as director of the respondent company on the allegation that despite his resignation the company did not file relevant e-form with RoC.

Case Law Details:
CP No. 51/614/CLB/2014

Companies Act, 1956; Section 614
Manav Kumar Agarwal (Petitioner) vs. M/s Discovery Enterprise (P) Ltd (Respondent)
Date of Judgment: 01/03/2016

Brief Facts of the Case:

The Petitioner alleged that he had resigned from the post of director of the respondent company on 18-11-2011 and duly intimated the same to the compamy in writing. However the company did not file Form-32 with RoC till date.

Contentions of the Petitioner:

  1. Section 303(2) of the Companies Act, 1956 makes it obligatory on every company to file e return on being informed of resignation of director.
  2. For a short period between 11-06-2014 to 16-07-2014 his name was not appearing at MCA website as director.
  3. The article of the company provides that a director shall be entitled to resign as director from the date specified while resigning.
  4. Provisions of Companies Act, 2013 were in force from 2014 onwards and company was bound to file form DIR-12 with RoC in terms of section 168 of the Companies Act, 2013.
  5. In accordance with the provisions of section 283(3) of the Companies Act, 1956, is resignation has to be given effect from the date of resignation as provided in the Articles of the company.
  6. There is no requirement of a Board resolution in the case of vacation of office under section 283.

CLB noted that the case of the petitioner was that he has given the resignation letter to the company, but it was not that the case that the company passed a resolution and failed to file such resolution approving the resignation of the petitioner director.

The CLB observed that there being no Board resolution, mere giving resignation letter will not amount to resolution by the Board, in other words, unless there was a Board resolution approving the directors resolution it shall be presumed that the petitioner was continuing to be a director of the company.

Dismissing petitioners contentions, CLB held that:

  1. Voluntary resignation will not come within the ambit of vacation of office under section 283.
  2. Unless a default is committed by the company section 614 can not be invoked.
  3. CLB can not invoke jurisdiction on assumption that non appearance of his name for a short period amounts to default on the part of the company

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In is notable that in the present case, both the CLB and the petitioner have not cited/relied any ruling/case law on the resignation from the directorships in the light of the facts of the case whereas the petitioner specifically pleaded that he Article of the company provides that a director shall be entitled to resign as director from the date specified while resigning.

Judicial View

Section 284 of the Companies Act, 1956 specified the manner in which a director could be removed before expiry of his/her term. Further Section 283 provided grounds on which a director would vacate his/her office. However, the 1956 Act did not specifically cited any provision relating to cessation from directorship by way of voluntary resignation. However Hon’ble Madras High Curt in S.B. Shankar vs Amman Steel Corporation (Crl OP 25173/2000) dated 08/11/2001 has ruled as under:

The learned counsel for the petitioner contended that the petitioner herein resigned on 4.10.1999 itself as evidenced by the public documents produced and the resignation took effect from the date of resignation letter and in this regard, he relied on the judgments of this Court in V.K.Lakshmana Mudaliar and another v. Emperor, AIR 1932 Mad. 497. P.RMAbdul Hug v. Katpadi Industries Lid. and another, and Murari v. Registrar of Company, 1975 T.L.N.J. 287. This Court in the above decisions held that the Director, who has resigned, will be deemed to have resigned from the date of his resignation. Ratnavel Pandian, J (as his Lordship then was) in the decision in S.S.Lakshmana Pillai v. Registrar of Companies, 1977 T.L.N.J. 11, has reiterated the position of law and the relevant portion is extracted below.

“…..For the above stated reasons and in the absence of any provision either in the Act or in the memorandum of 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 4.12.1972 has tendered his letter of resignation, resigning his directorship from the evening of 4.12.1972 and the said letter has been acknowledged by the first respondent, the Registrar of Companies and therefore I hold that the resignaiion had taken effect from 4.12 1972 and consequently the petitioner has ceased to hold the office from the evening of 4.12.1972.”

With respect, I agree with the views expressed in the above decisions. The director, who is resigned, will be deemed to have resigned from the date of his resignation. In the present case, the petitioner has resigned as Director of ihe first accused company on 4.10.1999 and he was no longer in the Board of the Company after that date either as Director or Chairman.

Perhaps the CLB was more concerned with powers under section 614 which gives jurisdiction to enforce duty of company to file returns etc. and the in this context it held that there could not be any default in filing form 32 unless the resignation was approved by the Board by means of a resolution.

Note: Under the section 168 of the Companies Act, 2013 safegurads have already been built up to provide that resignation of a director shall take effect from the date on which the notice of resignation is received by the company, or the date if any as specified in the said notice of resignation.

It is notable that as per the Companies (Amendment) Act, 2016 the onus casted upon the director to forward a copy of his resignation along with reasons to the RoC within 30 days have been diluted by making it optional.

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