Director's resignation legally effective despite company's non-compliance with statutory requirements under Section 168(2) Companies Act 2013

The Bombay HC allowed a petition for removal of the petitioner's name as director from the Registrar of Companies records. The court held that despite the company's non-compliance with certain statutory requirements, the director's resignation took legal effect from September 1, 2021, under Section 168(2) of the Companies Act, 2013. The court considered that the company never commenced business, the foreign co-director took no action, and COVID-19 impacted compliance capabilities. The company's failure to respond to the Registrar's demands was deemed a default by a non-functional, "stillborn" company that should not prejudice the resigning director's legitimate severance from the company.

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Issues Involved:
1. Removal of the Petitioner's name as a Director.
2. Initiation of action against the Company for non-compliance with the Companies Act, 2013.

Summary:

1. Removal of the Petitioner's name as a Director:
The Petitioner filed a Petition under Article 226 of the Constitution of India, seeking a Writ of Mandamus directing Respondent No. 1 (Registrar of Companies, Mumbai) to remove the Petitioner's name as a Director of Respondent No. 4 (Local Search Solution Pvt. Ltd., Mumbai) effective from 01.09.2021, the date of resignation. The Petitioner had tendered his resignation on 24 August 2021, which was accepted by the Board of Directors in a resolution dated 1 September 2021. The Petitioner contended that the company never commenced its business and failed to complete the necessary formalities for his resignation. Despite repeated follow-ups, the Petitioner's name continued to be reflected as a director in the Registrar of Companies' records.

The Court noted that Section 168(2) of the Companies Act, 2013 stipulates that the resignation of a director takes effect from the date the notice is received by the company or the date specified in the notice, whichever is later. In this case, the Petitioner's resignation took effect from 1 September 2021. The Court observed that the Registrar of Companies is obligated to update its records to reflect this legal position, especially since the company did not commence its business and the other director, a foreign national, did not take necessary steps for compliance.

2. Initiation of action against the Company for non-compliance:
The Petitioner also sought a direction for Respondent No. 1 to initiate appropriate action against Respondent No. 4 for default in complying with the provisions of the Companies Act, 2013 regarding the resignation of the Director. The Registrar of Companies opposed the Petition, arguing that the company had not fulfilled several compliances required under the Companies Act, 2013, including filing Form INC-20A for commencement of business, which prevented the filing of Forms DIR-11 and DIR-12. Additionally, the foreign director had not complied with Rule 12A of the Companies (Appointment and Qualification of Directors) Rules, 2014, leading to the deactivation of her DIN.

The Court acknowledged the peculiar circumstances, including the impact of the Covid-19 pandemic and the company's non-functional status. The Court ruled that the Petitioner's severance as a director took effect from 1 September 2021 and that the Registrar of Companies should update its records accordingly. The Court also clarified that the Registrar could take appropriate actions regarding other compliances and defaults of the company as mandated by law.

Conclusion:
The Petition was allowed in terms of prayer clause (a), directing the Registrar of Companies to remove the Petitioner's name as a Director of Respondent No. 4 effective from 1 September 2021. The Court also allowed the Registrar to take appropriate actions against the company for any other compliances and defaults. The Rule was made absolute, and the Petition was disposed of with no costs.

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