SeedUp

Written By: Swati Bajaj

Date: 24/05/2023

What happens when both or all the directors of the company resign from the board of directors of the company?

Section 168 of the Companies Act, 2013 deals with resignation of Directors. When, by operation of law, the office of a director is vacated, it is called vacation of office and the same is covered u/s 167 and also u/s 165 of the Companies Act, 2013. Vacation of office

168. Resignation of Director

(1) A director may resign from his office by giving a notice in writing to the company and the Board shall on receipt of such notice take note of the same and the company shall intimate the Registrar in such manner, within such time and in such form as may be prescribed and shall also place the fact of such resignation in the report of Directors laid in the immediately following general meeting by the company:

Provided that a director may also forward] a copy of his resignation along with detailed reasons for the resignation to the Registrar within thirty days of resignation in such manner as may be prescribed.

(2) 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.

(3) Where all the Directors of a company resign from their offices, or vacate their offices under section 167, the promoter or, in his absence, the Central Government shall appoint the required number of Directors who shall hold office till the Directors are appointed by the company in general meeting.

Vacation of Office

A Company may also face such a situation when due to operation of law u/s 167 of the Companies act, 2013, the office of all directors may be vacated.

The office of a director shall become vacant in case -

(a) he incurs any of the disqualifications specified in section 164;

(b) he absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board;

(c) he acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested;

(d) he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184;

(e) he becomes disqualified by an order of a court or the Tribunal;

(f) he is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than six months:

(g) he is removed in pursuance of the provisions of this Act;

(h) he, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment in that company.

Disqualification of a Director

A person shall not be eligible for appointment as a director of a company, if he is disqualified on the following grounds:

(a) he is of unsound mind and stands so declared by a competent court;

(b) he is an undischarged insolvent;

(d) he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence:

Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company;

(e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;

(f) he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;

(g) he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or

(h) he has not complied with sub-section (3) of section 152, i.e. he has not been allotted the Director Identification Number

(i) he has not complied with the provisions of sub-section (1) of section 165 (i.e. number of directorships held)

When the Board of Directors becomes defunct

If the Director incurs any of the disqualifications above or they resign, en masse, then this can lead to various legal and operational consequences for the company. When all directors of a company resign from the board of directors, it creates a situation where the company does not have a board of directors to manage its affairs.

In such a situation, the company is required to convene a general meeting of its shareholders within three months of the last director's resignation. The purpose of the meeting is to appoint new directors to the board of the company. If the shareholders fail to appoint new directors within three months, any member of the company may approach the National Company Law Tribunal (NCLT) and request that it appoint new directors to the board.

The NCLT may appoint new directors to the board after considering the financial position and operations of the company. The appointed directors may be individuals who are familiar with the operations of the company, or they may be independent directors who can provide a fresh perspective to the management of the company.

During the period when the company is without a board of directors, it may face several operational difficulties, including the inability to conduct business transactions, open bank accounts, or sign legal documents. The absence of a board of directors may also affect the company's creditworthiness and reputation.

Therefore, it is crucial for companies to ensure that there is always a sufficient number of directors on the board to avoid such situations. Companies should also ensure that they have a contingency plan in place in case all the directors resign from the board. This may involve identifying potential candidates for appointment to the board or having a clear procedure for the appointment of new directors in such situations.

In summary, the resignation of all directors from a company's board of directors can create significant legal and operational challenges for the company. Companies should take appropriate steps to ensure that there is always a sufficient number of directors on the board and have a contingency plan in place in case of such situations.

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Written By: Swati Bajaj

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