The Supreme Court in D.B. Negandhi v. Registrar of Companies quashed a criminal complaint against a director on the grounds that the director had resigned much before the company failed to lay its financial statements in its Annual General Meeting (AGM) and that the Registrar of Companies (RoC) was duly informed regarding his resignation.

Section 168(2) of the Companies Act, 2013 reads as follows:

The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later: Provided that the director who has resigned shall be liable even after his resignation for the offences which occurred during his tenure”.

The ruling reinstates the reasoning behind proviso to section 168(2) of 2013 Act. It is common understanding that relinquishment of office means severance from the post held in the company. Hence, once the resignation becomes effective, the director cannot be held responsible for acts done post his resignation. Of course, for the resignation to be effective it is essential under the Act that the resignation should be submitted to the company and the board should take note of the same. The resigning director and the company have to intimate the RoC in their respective capacities.

With the ruling in re D.B. Negandhi, the Supreme Court has made it clear that, even though resignation is a voluntary act, yet the effective date of such resignation is of immense importance in deciding future cases. With Comapnies Act, 1956 containing no provision pertaining to resignation of a director, it was left to either the Articles of Association of a company or in disputed cases to the courts to decide the effective date of resignation. With section 168 of 2013 Act, the ambiguity pertaining to effective date of resignation by a director and his liability post such resignation has been removed.

August 30th, 2017