Case Title: Naveen Bhatnagar vs M/s Sudarsham Consolidated Limited

Citation: 2023 LiveLaw (JKL) 269

The Jammu and Kashmir and Ladakh High Court on Friday clarified that a Director’s resignation is deemed to take immediate effect only in cases where the Articles of Association do not specify the resignation’s effect.

The court said that “.. if the Articles of Association of a company make a provision for resignation, the same has to be resorted to in accordance with the provisions contained in the Articles of Association. As to when a resignation is to take effect on acceptance, the same would be governed by the Articles of Association. In the absence of any indication as regards the effect of resignation in the Articles of Association, a resignation would take effect immediately.”

BRIEF FACTS:

1. The appellant was appointed as a Director of the respondent-Company on 06.02.2009 and on 17.09.2010, he addressed a resignation letter to the Board of Directors of the respondent-Company, which was duly received and acknowledged by the respondent-Company.

• On 21.09.2010, a communication was addressed by one of the Directors of the respondent-Company, namely, S. M. Z. Naqvi to the appellant informing him that his resignation as on 17.09.2010 has been noted in the records of the Company and that he has been relieved with effect from 21.09.2010.

• The appellant was also informed that his Form 32 will be filed with the Registrar of the Companies accordingly.

• It seems that when the respondent-Company did not submit Form 32 with the Registrar of the Companies, the appellant made various representations to the respondent-Company as well as to the Registrar of the Companies in this regard but no action was taken in the matter.
• Ultimately the appellant approached the Company Law Board seeking a direction upon respondent-Company to submit Form 32 of the appellant with the Registrar of the Companies, which prayer was declined by the Company Law Board vide the impugned order and instead it was held that the appellant has automatically ceased to be the Director with effect from 01.07.2011.

• The appellant has thrown challenge to the impugned order passed by the Company Law Board on the ground that once the respondent-Company admitted the receipt of resignation letter from the appellant and conveyed to  him its acceptance vide letter dated 21.09.2010, there was no reason for the respondent-Company not to submit Form 32 in due course of time. It has been contended that the Company Law Board has failed to take note of the resignation letter dated 17.09.2010 and the acceptance letter issued by the respondent-Company on 21.09.2010.

OBSERVATIONS & DECISION OF COURT

1. In the Companies Act of 1956 there was no provision relating to resignation of the office of the Director, although Section 168 of the Companies Act, 2013, specifically deals with resignation of the Director. The said provision was enforced with effect from 01.04.2014 but in the instant case, the matter pertains to the period when Companies Act, 2013 had not been promulgated so this case would be governed by the provisions contained in Companies Act, 1956 in which there is no provision relating to the resignation 5 CP No. 3/2013 of the office of the Director.
2. In Palmer’s Company Precedents 17th Edition part 1 at page 565, it has been stated that even in the absence of any express power to resign unless the articles are specifically framed, a Director may by notice to the company resign his Directorship. Again in Parmer’s Company Law, 21st Edition at page 543 under the heading “Resignation”, it has been stated that a Director can at any time resign from his office and usually the articles make express provision accordingly.
3. From the above, it can be inferred that if the Articles of Association of a company make a provision for resignation, the same has to be resorted to in accordance with the provisions contained in the Articles of Association. As to when a resignation is to take effect on acceptance, the same would be governed by the Articles of Association. In the absence of any indication as regards the effect of resignation in the Articles of Association, a resignation would take effect immediately.
4. If we have a look at the Articles of Association of the respondent Company, clause 95 deals with the situations when an office of the Director shall become vacant. It reads as under:

“95. The office of a Director shall become vacant:- (i) On the happening of any of the events provided for in Section 283 of the Act; (ii) On the contravention of the provisions of Section 314 of the Act, or any statutory modifications thereof; (iii) if a person is a Director of more than fifteen Companies at a time; (iv) In the case of alternate Director on return of the original Director to the State, in terms of Section 313 of the Act, or (v) On resignation of his office by notice in writing and is accepted by the Board.”

Clause 96 of the Articles of Association further provides that every Director present at any meeting of Board or Committee thereof shall sign his name in a book to be kept for that purpose to show his attendance there at.

5. From a perusal of the clauses 95 and 96 of the Articles of Association, it is clear that the office of a Director would become vacant on resignation of his office by notice in writing and its acceptance by the Board of Directors and at any meeting of the Board, every Director has to sign his name in the book to be kept for the purpose.

6. In the instant case, the appellant has tendered his resignation in terms of letter dated 17.09.2010. One of the Directors of the respondent-Company has acknowledged receipt of the said letter and has conveyed its acceptance on  21.09.2010. However, it has been consistent stand of the respondents before the Company Law Board as also before this Court that the resignation letter was never considered by the Board of Directors of the respondent-Company and therefore, there is no question of its acceptance by the Board.  

7. The appellant has not placed on record anything to even remotely suggest that any meeting of the Board of Directors had taken place for considering his letter of resignation. In fact, it is not even the case of the appellant. Even the letter of acceptance dated 21.09.2010 does not bear any reference to any resolution of the Board of Directors of the respondent  Company on the basis of which, the said letter of acceptance has been issued. In the face of this situation, it can safely be stated that letter of resignation dated 17.09.2010 was never placed before the Board of Directors of the respondent-Company nor was it considered and accepted by the Board.

Clause 95 of the Articles of Association of the respondent-Company clearly provides that the office of the Director would become vacant on resignation of the Director by notice in writing and its acceptance by the Board, meaning thereby that unless the resignation is accepted by the Board of Directors, the same would not take effect. Therefore, the Company Law Board is right in holding that resignation of the appellant would take effect only if his letter of resignation is considered and accepted by the Board of Directors, which in the instant case, has not been done.

8. It is not a case where the Articles of Association of the respondent  Company do not provide for eventuality of a resignation and it is also not a case where Articles of Association of the respondent-Company lay down that resignation of a Director would take effect immediately on tendering the  resignation, but it is a case where the Articles of Association of the respondent  Company provide that resignation of a Director would take effect when it is accepted by the Board of Directors. Therefore, the contention of the appellant that the moment resignation was tendered by him, the same would take effect, is not tenable. Merely because one of the Directors had conveyed acceptance of the resignation of the appellant vide his letter dated 21.09.2010 would not make any difference because the resignation of the appellant was not accepted in the manner as provided under the Articles of Association.

9. For the foregoing reason, I do not find any ground to interfere with the well-reasoned and lucid order passed by the Company Law Board.

10. The appeal lacks merit and is dismissed accordingly.

DISCLAIMER: the case law presented here is only for sharing information with readers. The views are personal, shall not be considered as professional advice. In case of necessity do consult with professionals.

Source : https://www.livelaw.in/pdf_upload/doc-20231020-wa0011-499648.pdf