Madras High Court
S.S. Lakshmana Pillai vs Registrar Of Companies And Anr. on 24 September, 1976
JUDGMENT Ratnavel Pandian, J.
1. The petitioner who is facing his criminal prosecution as accused No. 2 in C. C. No, 25489 of 1975 on the file of the VII Metropolitan Magistrate, G.T., Madras, has preferred this criminal miscellaneous petition invoking the inherent jurisdiction of this court under Section 482, Criminal Procedure Code, to quash the proceedings in the said case as against him. The first respondent, namely, Registrar of Companies, Tamil Nadu, Madras, has instituted criminal proceedings against the petitioner in the above case under Sections 159 and 162 of the Companies Act, 1956. The allegations in the complaint filed by the first respondent are : M/s. S.S. Pillai and Sons Private Ltd. was incorporated as a company under the Indian Companies Act, 1913, on September 11, 1946, and is having its registered office at 6, Vasikkameenda Vinayakarkoil Street, Tirunelveli-6. The petitioner, S.S. Lakshmana Pillai, is the director of the said company. The annual general meeting of the company in the year 1974 should have been held and the annual return made up to the date of the meeting should have been filed with the complainant on or before October 13, 1974. According to the provisions of Section 159 of the Companies Act, 1956, the company and its directors are under a statutory obligation to file with the complainant, first respondent, an annual return in the prescribed form made up to the date of the annual general meeting. Till the date of the complaint namely, July 26, 1975, the default continued for 286 days. On the above allegations, it was prayed by the first respondent (complainant) that the petitioner has violated the provisions of the Companies Act of 1956 (hereinafter referred to as " the Act") making himself liable to be punished under the said Act.
2. The petitioner in this petition has stated that as early as December 4, 1972, he had resigned his directorship and informed the Registrar of Companies that the company was not functioning and that the company may, therefore, be treated as a defunct company. According to him, the company has no assets and liabilities and, therefore, necessary instructions may accordingly be issued. Form No. 32, dated December 4, 1972, was also filed with the Registrar of Companies on the same day by the petitioner as required by Section 303(2) of the said Act. This was duly acknowledged by the Registrar of Companies (first respondent) in his letter No. 2752/F. 32/ PC. 11/72 dated June 28, 1973, whereby the Registrar wanted further information as to whether the resignation had been accepted. The petitioner submits that the resignation takes effect when it was tendered and that there is no question of accepting the resignation by the directors or any other person for it to take effect and that after his resignation, he had no connection whatsoever with the company and he had ceased to be an officer of the company within the meaning of the Act. For the reasons stated by him, the petitioner pleads that there is absolutely no necessity for filing a criminal proceeding against him under the provisions of the Act by the first respondent who had knowledge of the resignation of the petitioner and the petitioner consequently ceasing to be a director. In furtherance of his case, the petitioner has submitted that the said company was the managing agents of Sri Ganapathy Mills Private Ltd. at Tirunelveli and the only duty of S.S. Pillai and Sons Private Ltd. was the duty of managing the affairs as managing agents for the aforesaid company. As the managing agency has been compulsorily abolished under the provisions of the. Companies Act, 1956, the defunct company has no other work and it has no assets or liabilities. The company has also filed the balance-sheet as on December 31, 1971, showing the financial position and requested the first respondent to treat the company as a defunct company.
3. A counter-affidavit was filed before this court by the Assistant Registrar of Companies raising the following contentions besides reiterating the averments made in the complaint. However, it is admitted that the petitioner has filed Form No. 32 dated December 4, 1972, intimating his resignation as a director of the company with effect from December 4, 1972, and that the company filed the balance-sheet as on December 31, 1971. But, it is averred in this connection that the company whose number of directors was reduced to one cannot accept any resignation without an existence of the minimum number of directors on its board of directors. The said Form No. 32 was filed with the first respondent on June 28, 1973, and necessary enquiries were to be made from the company whether the resignation of the petitioner has been accepted. It is his case that the resignation does not take effect from the date when it was tendered and, therefore, the petitioner cannot take the plea that he had resigned from the directorship of the company with effect from December 4, 1972, as the company is an artificial person and it cannot function without the minimum number of directors. The company and the petitioner were advised to co-opt one more director as the company was left with a single director as per the office letter No. 2752/LC/75 dated March 1, 1975. The petitioner has not cared to comply with the directions of the office of the Registrar and the said letter was returned undelivered.
4. The only point that arises for consideration is whether the letter of resignation sent by the petitioner dated December 4, 1972, would itself constitute a valid resignation without its acceptance by the board and absolve him of all his liabilities from the date of the resignation. It may be noted here that the company was incorporated in September, 1946, and admittedly as per the latest annual return available on the records of the company, i.e., as per the annual return made up to December 4, 1972, one Sri S.S. Sivan Pillai and Sri S.S Lakshmana Pillai (the petitioner herein) were the directors of the company and that the said Sivan Pillai had expired and Form No. 32 to that effect was filed in the office of the Registrar of Companies by the petitioner on April 10, 1972, and that the petitioner was the only remaining director of the company thereafter.
5. If the letter of resignation was sufficient for a valid resignation, the petitioner will not be liable to submit the return for the failure of which criminal proceedings have been instituted. This proposition of law is not in dispute. Therefore, I shall now go to the legal question whether the resignation takes effect from the date of the letter of resignation or only after the acceptance of the same by the board of directors.
6. In the Indian Companies Act (hereinafter referred to as " the Act") there is no provision relating to resignation of office of director as it was in the case of the managing agent provided under Section 342 of the Act as it then stood and now omitted by Section 6 of the Act XVII of 1969 which read that " Unless the managing agency agreement otherwise provided, the managing agent might, by notice to the board, resign his office with effect from such date as might be specified in the notice". A copy of the memorandum and articles of association of the company was produced in court on the direction of this court and after perusing the same I find there is no provision giving a right to the director to resign at any time and similarly there is no provision prescribing the mode of the acceptance of the resignation, if any, of a director or that the resignation takes effect only from the date of acceptance by the board of directors. Section 284 of the Act deals with the removal of directors (not being a director appointed by the Central Government in pursuance of Section 408) before the expiry of his period of office under the various conditions enumerated therein. Section 262 of the Act provides for filling of casual vacancies among directors if the office of any director appointed by the company in the general meeting is vacated before his term of office which will expire in the normal course. Section 283 of the Act deals with the vacation of office by directors and the circumstances under which the office is vacated are mentioned therein.
7. The provisions of Section 283 which are relevant for consideration of the question that arises in this petition are extracted below :
" (1) The office of a director shall become vacant if-
(a) he fails to obtain within the time specified in Sub-section (1) of Section 270, or at any time thereafter ceases to hold, the share qualification if any, required of him by the articles of the company ;
(b) he is found to be of unsound mind by a court of competent jurisdiction ;
(c) he applies to be adjudicated an insolvent;
(d) he is adjudged an insolvent;
(e) he is convicted by a court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six mouths ;
(f) he fails to pay any call in respect of shares of the company held by him, whether alone or jointly with others, within six months from the last date fixed for the payment of the call unless the Central Government has, by notification in the Official Gazette, removed the disqualification incurred by such failure ;
(g) he absents himself from three consecutive meetings of the board of directors, or from all meetings of the board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the board ;
(h) he (whether by himself or by any person for his benefit or on his account), or any firm in which he is a partner or any private company of which he is a director, accepts a loan, or any guarantee or security for a loan, from the company in contravention of Section 295 ;
(i) he acts in contravention of Section 299 ;
(j) he becomes disqualified by an order of court under Section 203;
(k) he is removed in pursuance of Section 284 ; or (1) having been appointed a director by virtue of his holding any office or other employment in the company, or as a nominee of the managing agent of the company, he ceases to hold such office or other employment in the company or, as the case may be, the managing agency comes to an end."
8. It is clear from the above provisions of the Act that there is no provision for vacancy by resignation of a director.
9. Section 284 deals with the removal of directors. Besides the contingencies contemplated by these two sections (Sections 283 and 284), will it be open to a director to resign and sever his connection with the company as a director ? With regard to resignation, we find the word " resignation " occurring in Section 318(3)(a) and (b) of the Act which reads as follows :
" (3) No payment shall be made to a managing or other director in pursuance of Sub-section (1), in the following cases, namely:--
(a) where the director resigns his office in view of the reconstruction of the company, or of its amalgamation with any other body corporate or bodies corporate, and is appointed as the managing director, managing agent manager or other officer of the reconstructed company or of the body corporate resulting from the amalgamation ;
(b) where the director resigns his office otherwise than on the reconstruction of the company or its amalgamation as aforesaid. "
10. This provision contemplates a resignation by a director though, as already observed by me, there is no express provision for vacancy by resignation and as to when a resignation by a director takes effect. Therefore, in the absence of such specific provision, I am left only with the precedents and practice on the subject.
11. So far as the Indian Companies Act is concerned, this has followed the pattern of the British law relating to companies. If there is any provision in the articles giving right to a director to resign at any time, the resignation will take effect without any need for its acceptance by the board or the company in the general meeting. In the absence of any such provision relating to the resignation in the memorandum or articles of association, it is well settled that a resignation once made takes effect immediately when the intention to resign is made clear.
12. In Halsbury's Laws of England, fourth edition, volume 7, at page 316, in paragraph 536 under the heading " Resignation ", it is stated as follows:
" Where by the articles a director has power to resign at any time, his resignation takes effect independently of acceptance by the other directors or the company. Where the articles of association of a company provide that the office of a director is to be vacated ipso facto if by notice in writing to the company a director resigns office, an oral resignation if accepted by the company is valid."
13. Of course, it is not made clear here as to what happens when no provision for resignation is made either in the Act or in the articles of association as in the instant case. But the true position of directors is that of agents for the company.
14. In Palmer's Company Precedents, seventeenth edition, part 1, at page 565 it is stated as follows :
" Even in the absence of any express power to resign, it is submitted that, unless the articles are specially framed, a director may by notice to the company resign his directorship. Directors ' are merely agents of the company' and an agent may determine his agency. "
15. In Palmer's Company Law, twenty-first edition, at page 543, under the heading " Resignation ", it is stated as follows :
" A director can at any time resign his office, and usually the articles make express provision accordingly. If he communicates his resignation to the company, for instance by a notice upon the company served in the manner provided by Section 437, his resignation is effective, A resignation once made cannot be withdrawn, except with the consent of the company."
16. In Ramaiya's Guide to the Companies Act, 7th edition, at page 481, under the heading "Resignation of office of director", it is stated as follows:
"There is no provision in the Act relating to the resignation of his office by a director, as in the case of a managing agent (Section 342). If there is any provision in the articles giving the right to a director to resign at any time, the resignation will take effect without any need for its acceptance by the board or the company in general meeting. Where a director is elected or has contracted to act for a fixed period, his resignation, before the expiration of the period, may make him liable for damages for breach of his contract, unless the articles permit such resignation, or unless there is good cause.
In the absence of any provision in the articles the ordinary rule of common law as regards resignation by an officer or agent must be followed, namely, intimation by notice given either to the company or the board and acceptance of the same by them. See Glossop v. Glossop [1907] 2 Ch 370 (Ch D), Latchford Premier Cinema Ltd. v. Ennion [1931] 2 Ch 409; [1932] 2 Comp Cas 106 (Ch D). In the latter case, even resignation orally tendered at a general meeting and accepted by the meeting was held to be effective. See also State of Bihar v. Sitaram Jhunjhunwala and Mohan Chandra v. Institute of Chartered Accountants .
Where a resignation states that it is to take effect on acceptance, or the articles so require, acceptance is necessary to end the tenure of office. Where, however, the resignation says that it is to take effect immediately, acceptance is not necessary unless the articles or any provision of law makes it necessary. Any form of resignation, whether oral or written, is sufficient provided the intention to resign is clear. It is, however, advisable that the resignation is in writing and also indicates the time when it is to take effect, so that it may serve as a record of reference in case of controversy. In the absence of any indication otherwise, a resignation takes effect immediately. Resignation will not, however, relieve him from any accountable or other liability which he may have incurred while in office.
A resignation once made cannot be withdrawn except with the consent of the company or the board. See R. v. Mayor and Town Council of Wigan [1885] 14 QBD 908 (QB), Glossop v. Glossop [1907] 2 Ch 370 (Ch D) and Shivlal Motilal v. Tricumdas Mills Co. Ltd. [1912] ILR 36 Bom 564."
17. In Gore-Browne's Handbook on Joint Stock Companies, 41st edition, page 358, it is stated :
" Articles usually permit a director to resign. Even in the absence of such a power, unless the articles contain conditions, he may resign, and his resignation is complete where notice is given to the secretary, and cannot subsequently be withdrawn and even though no acceptance has taken place. Notwithstanding that the articles contemplate a written resignation a verbal notice of resignation given and accepted at a general meeting of the company is binding."
18. In Buckley on the Companies Acts, 13th edition, at page 882, it is stated as follows:
" A director can, subject to the articles, resign his office, and cannot withdraw his resignation without the company's consent. Notwithstanding an article providing for resignation by notice in writing, a director can resign by word of mouth. Where a director's resignation is accepted by the board he is not liable for a report made and dividend recommended after that time, though his resignation was not disclosed to the company, and he was actually named in the report as a director. "
19. In Abdul Huq v. Katpadi Industries Ltd. , after referring to various books on this subject, Ramaswami J. has concluded as follows :
" The net result of this analysis is that a director, who has submitted his resignation, will be deemed to have resigned from the date of his resignation, without prejudice, of course to his liabilities and obligations which had occurred up to that date and which he cannot evade by severing his connection with the company."
20. In the decision in State of Bihar v. Sitaram Jhunjhunwala , in considering as to when the resignation takes effect, it was held that the acceptance of resignation is unnecessary for the resignation to take effect when once it is tendered in writing. In that case, the articles of association of the company itself provided that the director will cease to hold office ipso facto upon giving the notice of resignation in writing.
21. Reference is made to the decision of the Supreme Court in Gindroniya v. State of Madhya Pradesh . In that case a probationary naib-tahsildar was appointed temporarily. While he was in service, the Commissioner placed him under suspension pending enquiry. Some time later the State Government revoked his orders with a view that the enquiry ordered by the Commissioner may not be legal. But, on the same day, it ordered a departmental enquiry against him and at the same time it placed him under suspension pending that enquiry. In this connection, a show-cause notice was issued to the appellant in that case on August 1, 1964. But, even before that show-cause notice was issued, on June 6, 1964, the appellant gave a notice to the Government terminating his services. The appellant in that case after the issue of the above-said notice, moved the High Court of Madhya Pradesh to quash the orders passed by the State Government on the ground that as he was no more in the service of the Government, the Government cannot take any departmental action against him. The contention of the appellant was resisted by the State Government on the ground that notice given by the appellant on June 6, 1964, was invalid as it did not conform to the rules besides other contentions.
22. The High Court accepted the above-said contention of the State Government and dismissed the writ petition. The appellant preferred an appeal by special leave to the Supreme Court questioning the dismissal of his writ petition. Their Lordships of the Supreme Court, after examining the applicability of Rule 12 of the Madhya Pradesh Government Servants (Temporary and Quasi-Permanent Service) Rules, 1960, held as follows (page 1498):
"This notice was received by the Government on June 9, 1964. In that notice, the appellant has unequivocally informed the Government that he has terminated his services with the Government. This part of the notice satisfies the requirements of the main part of Rule 12(a). In that very notice he has also intimated that any amount payable by him to the Government under the provisos to Rule 12(a) may be forfeited from the amounts due to him from the Government. It may be noted that considerable amount must have been due to him towards his salary during the period of his suspension. By his notice he intimated to the Government that the amounts due from him to the Government under the provisos to Rule 12(a) may be deducted from that amount. We fail to see how this notice is not in accordance with the requirements of Rule 12. In our opinion, the High Court was wrong in holding that the notice in question did not comply with the requirements of the said rule..."
23. From the above findings, it follows that ever since June 9, 1964, the appellant was not in the service of the Government. Therefore, it was not open to the Government to take any disciplinary proceedings against him. "
Consequent to the observation the appeal was allowed.
24. A Division Bench of the Delhi High Court in Mohan Chandra v. Institute of Chartered Accountants of India , while considering the resignation tendered by the President of the Institute of Chartered Accountants, after elaborate discussion, observed " that if it was necessary in law that the resignation tendered by the President should be accepted by the council, then the obvious inference is that till the resignation is accepted, the President will have the right to withdraw the same ".
25. In Writ Petition No. 2596 of 1966, Khurshid Ahmedkhan v. Union of India, following the dictum laid down in Gindroniya v. State of Madhya Pradesh , Ramaprasada Rao J. has observed that when a notice of resignation was given by a temporary employee and when there were no charges framed against him, it is not possible for the employer to frame charges against him after the notice of resignation was accepted by the employer unequivocally and consequently issued a writ of certiorari quashing the memorandum issued to him by the employer.
26. In Criminal Revision Case Nos. 328 and 329 of 1971 [T. Murari v. State --[1976] 46 Comp Cas 613 (Mad)], wherein the same question arose, Krishnaswamy Reddy J. has held that even in the absence of a provision in respect of resignation under the Act (Central Act I of 1956) or under the articles of association of the company, the resignation tendered by a director or a managing director unequivocally in writing will take effect from the time when such resignation is tendered. "
27. Now, coming to the facts of the case, it is the admitted fact that the petitioner submitted his letter of resignation by letter dated December 4, 1972. The said letter reads as follows:
" This is to inform you that the company is not functioning. Please treat it as defunct company as mentioned in the directors' report to the shareholders filed along with balance-sheet of the company as on December 31, 1971. The company has neither assets nor liabilities ; as such this request. Moreover I am also resigning my directorship, from today evening. "
28. This letter was acknowledged by the first respondent on June 28, 1973, whereby the first respondent wanted further information as to whether the resignation has been accepted by the company. Admittedly there is no provision in the memorandum or articles prescribing any condition that the resignation tendered by a director of a company will take effect after its acceptance by the company or the board of directors. For the above stated reasons and in the absence of any provision either in the Act or in the memorandum or articles, I am of the view that the director who had submitted his resignation would be deemed to have resigned from his office from the date of the submission of his resignation, when his intention is unequivocally expressed either orally or by a letter. A fortiori, in the instant case, the petitioner by his letter dated December 4, 1972, has tendered his letter of resignation, resigning his directorship from the evening of December 4, 1972, and the said letter has been acknowledged by the first respondent, the Registrar of Companies and, therefore, I hold that the resignation had taken effect from December 4, 1972, and consequently the petitioner has ceased to hold the office from the evening of December 4, 1972.
29. As regards the other contention of the first respondent that the petitioner should have co-opted another director before he tendered his resignation, I see that there is no obligation under the Companies Act requiring a director, even if he is the only director, to co-opt another in case he intends to resign his office. After going through the provisions of the Act, I find there is nothing to show that such a co-option is a condition precedent for a director validly tendering his resignation. The power of co-option is only an enabling provision to co-opt so as to have the quorum for holding the meeting. There is no specific article in the articles of association of this company that it is imperative; on the part of the outgoing director to co-opt another director before he leaves his office. So this contention also fails.
30. In the result I feel that, in order to secure the ends of justice, it would be just and expedient to invoke the inherent power of this court under Section 482, Criminal Procedure Code, for quashing the proceedings. Accordingly, the proceedings against the petitioner are quashed and the petition is allowed.