Companies Act Section 168

Companies Act, Section 168: Resignation of Director

Section 168 of the Companies Act governs the resignation of a director from a company. This provision establishes the procedural requirements, effective date of resignation, post-resignation liabilities, and remedial measures in cases where all directors resign simultaneously.

This section ensures clarity, transparency, and accountability in the resignation process while safeguarding corporate governance continuity.

1. Process for Resignation of a Director

(a) Submission of Written Notice

A director who wishes to resign from his position must submit a written notice to the company. This written resignation acts as an official communication of the director’s intent to step down.

(b) Duty of the Board to Take Note

Once the resignation notice is received, the Board of Directors is obligated to acknowledge and take note of the resignation in their records. The resignation is not subject to approval by the Board; the Board only acknowledges and processes it.

(c) Intimation to the Registrar of Companies (ROC)

The company must inform the Registrar of Companies (ROC) about the resignation.
The intimation must be done in the manner, time, and form as prescribed by the law.
The resignation must also be reported in the Directors’ Report, which is presented at the next general meeting of the company.
(d) Right of the Director to Inform the ROC

A director may also independently submit a copy of their resignation to the ROC.
This submission must be accompanied by detailed reasons for the resignation.
The submission to the ROC must be made within 30 days of the resignation.
This ensures regulatory authorities are aware of the director’s resignation, even if the company fails to report it.
2. Effective Date of Resignation

The resignation of a director becomes effective based on the following criteria:

The date on which the company receives the resignation notice, or
The date specified by the director in the resignation notice (whichever is later).
This ensures that there is a clear record of the resignation date, preventing any ambiguity or disputes regarding the director’s tenure.

3. Post-Resignation Liabilities of the Director

Even after a director has resigned, they remain liable for any offenses committed during their tenure. This provision ensures that directors cannot evade legal responsibilities by simply resigning from their position.

For example:

If a director was involved in financial misconduct, regulatory non-compliance, or fraudulent activities before resignation, they can still be held accountable.
The resignation does not absolve the director of their obligations under laws related to taxation, corporate fraud, or shareholder rights.
This clause strengthens corporate governance and accountability, ensuring that directors act responsibly during their tenure.

4. Appointment of New Directors in Case of Mass Resignation

(a) Resignation of All Directors

In cases where all directors of a company resign at the same time, or their offices become vacant due to disqualification under Section 167, a governance crisis may arise.

(b) Appointment by Promoters or Government Intervention

To prevent such a crisis, the promoter of the company, or in the absence of a promoter, the Central Government, shall appoint the necessary number of directors to ensure the company can function properly.

(c) Temporary Tenure of Appointed Directors

The newly appointed directors hold office only until the company appoints permanent directors in a general meeting. This provision ensures:

Continuity of business operations despite the resignation of existing directors.
Protection of stakeholder interests, including shareholders, creditors, and employees.
Avoidance of legal or financial repercussions arising from the absence of a functioning Board of Directors.