Resignation of Director

Resignation of a director is an essential aspect of corporate governance, allowing directors to step down from their position for various reasons. The Companies Act, 2013 provides a structured framework for the resignation process, ensuring transparency and accountability within a company.

Grounds for Resignation

Directors may choose to resign for various reasons:

• Personal or professional commitments.
• Differences in opinion with other board members or management.
• Health issues or personal circumstances.
• Dissatisfaction with company performance or governance practices.
• Desire to pursue other opportunities.

Notice of Resignation

Under Section 168 of the Companies Act, a director wishing to resign must provide a written notice to the company. Key points regarding the notice of resignation:

• Format: The resignation must be communicated in writing, and there is no prescribed format; however, it should clearly state the intention to resign.
• Duration: The notice period is not specified in the Act; however, it is considered good practice for directors to provide reasonable notice to allow the company to make necessary arrangements.
• Submission: The notice should be submitted to the company secretary or the board of directors.

Board Meeting

After receiving the resignation notice, the board of directors must acknowledge the resignation at its next meeting. The key steps are:

• Acknowledgment: The board should formally acknowledge the receipt of the resignation.
• Discussion: The board may discuss the reasons for resignation if the director wishes to share them, although this is not mandatory.
• Resolution: A resolution may be passed to accept the resignation.

Filing with the Registrar:

Once the resignation is accepted, the company is required to file a notice of resignation with the Registrar of Companies (ROC). This is done using Form DIR-12, and it must be filed within 30 days of the resignation. The form should contents:

• Details of the resigning director.
• Date of resignation.
• Confirmation that the resignation has been accepted by the board.

Director Identification Number (DIN):

The resignation does not affect the Director Identification Number (DIN) of the resigning director. The DIN remains valid even after the resignation, allowing the individual to be appointed as a director in the future if they wish.

Rights of Resigning Directors:

Resigning directors have certain rights during the resignation process:

• Right to a Fair Process: Directors can expect a transparent process regarding their resignation.
• Right to Notification: The resigning director has the right to receive formal acknowledgment from the board regarding their resignation.
• Right to Representations: If the resignation is due to dissatisfaction with the company’s affairs, the director can make a representation regarding their concerns, which should be circulated to the board.

Consequences of Resignation

The resignation of a director can have several implications for the company:

• Impact on Board Composition: The resignation may affect the composition and effectiveness of the board, particularly if the director held a key position.
• Need for Replacement: The company may need to appoint a new director to fill the vacancy, ensuring compliance with the minimum director requirements as per the Companies Act.
• Potential Legal Obligations: If a director resigns amidst ongoing investigations or legal proceedings, the company must ensure that all legal obligations and disclosures are met.

Post-Resignation Obligations

After resignation, the director may have certain obligations:

• Return of Company Property: The resigning director must return any company property, documents, or information in their possession.
• Non-Disclosure of Confidential Information: The director must maintain confidentiality regarding sensitive company information even after resignation, as per the fiduciary duties owed to the company.
• Cooperation with Company: The director may be required to cooperate with the company in any ongoing matters or inquiries that relate to their tenure.