Resignation Of Directors In A Company: What DIR-12 And DIR-11 Actually Require

 

Resignation of Directors in a Company: What DIR-12 and DIR-11 Actually Require

Karan started his software company in Pune five years ago. Year one of his co-directors a childhood friend who had joined as a founder decided to move abroad. He wanted out of the company completely. They had a conversation about it shook hands and the friend stopped coming to board meetings. Everyone moved on.

Six months later when Karan’s company was in talks with an investor the due diligence team pulled up the MCA records. The friend’s name was still showing as a director on the MCA portal. No resignation on record. No filing done. The investor had questions. The deal got delayed by three weeks while the paperwork was fixed on an urgent basis.

This kind of thing happens all the time. Directors get appointed without formalities. Resignations are accepted in conversation. Never documented. Nobody files the forms on time. At all. Then it shows up at the worst possible moment.

The law on director appointments and resignations is straightforward. It does require specific forms filed within specific timelines. Two forms in particular matter the DIR-12, filed by the company and DIR-11 filed by the director personally.

 Who Can Be a director. The Basic Eligibility

Before getting into the forms, it helps to understand who can be appointed as a director.

Any person who is at 18 years old and has a Director Identification Number (DIN) can be a director in an Indian company. A DIN is an identification number issued by the Ministry of Corporate Affairs. Without a DIN a person cannot be appointed as a director. The MCA system simply will not process it.

Also, the person must not be disqualified under Section 164 of the Companies Act 2013. Common disqualifications include being declared insolvent being of mind by a court having been convicted of a criminal offence involving moral turpitude with imprisonment of six months or more or being disqualified by the MCA itself for non-filing of returns by companies where the person was previously a director.

A director must also give their consent to act as director in Form DIR-2 before the appointment is made. This is a one-page consent form. But it is mandatory and the appointment is not complete without it.

 Appointment of a Director: How It Actually Works

There are ways a director can be appointed.

 Appointment at General Meeting (AGM/EGM): The common route is approval by shareholders at a general meeting. The shareholders pass a resolution approving the appointment.

 Appointment by the Board as an Additional Director: Under Section 161 of the Companies Act the Board can appoint an Additional Director between two meetings. There is a catch. An Additional Director holds office only until the next AGM. If shareholders do not ratify the appointment at the AGM the person ceases to be a director

 Form DIR-12: Filed by the Company for Every Change in Directors

DIR-12 is the form through which the company intimates the Registrar of Companies about any change in its position. This includes appointment of a director, resignation of an existing director, removal of a director and other changes in designation.

The form is filed on the MCA portal by the company. It must be digitally signed by a director of the company. Certified by a practising Company Secretary or CA.

 What information does DIR-12 capture?: The form asks for the CIN of the company the DIN of the director being appointed or removed the category of directorship the date of appointment or cessation and whether the change happened by appointment, resignation, removal, death or any other cause.

 Resignation of a Director: Two Separate Obligations

When a director wants to resign, they send a written resignation letter to the company. The Companies Act, 2013 under Section 168 says that resignation takes effect from the date the company receives it or the date mentioned in the resignation letter. Whichever is later.

 The Company’s Obligation: DIR-12: On receiving the resignation letter the company must file DIR-12 within 30 days of receiving the letter. The resignation letter is an attachment to this filing.

 The Directors Obligation: DIR-11: A resigning director has the option. And in cases the obligation. To file DIR-11 directly with the MCA to intimate them of the resignation. DIR-11 is filed by the director personally. It captures the DIN of the resigning director, the CIN of the company the date of resignation and the reasons, for resignation.

Under Section 169 of the Companies Act a director can be removed by a majority vote at a general meeting. The process requires a notice of at least 14 days before the meeting. A copy of the notice must be sent to the director concerned. The director has the right to be heard and make a representation.

This protection exists for a reason. A director, a minority shareholder-director cannot simply be thrown out by a majority board decision. The law gives them the right to present their case to the shareholders.

After the resolution is passed, removing the director the company files a form within 30 days. The supporting document is a copy of the majority vote passed at the meeting.

Removal under Section 169 does not apply to directors appointed by tribunals or the Central Government. Those have processes.

 What Happens When Both Forms Are Not Filed?

The consequences affect both the company and the individual director.

 For the company not filing the form within 30 days results in fees. Continued non-compliance can lead to prosecution under the Companies Act.

 For the director not having the form on record means their directorship shows as active. This affects them in ways. If they apply for a director position or try to be appointed elsewhere an active directorship can raise red flags.

 A Few Situations That Come Up Often

 A director wants to resign. The company is not cooperating: Send a resignation letter by speed post. File a form directly. The company has lost contact with a director: Trace the director. Obtain their consent and resignation letter.

A director passes away: The company files a form intimating the cessation due to death.

 Checklist Before Filing Forms

 For the company before filing for an appointment: Get consent signed by the director. Pass a board resolution. Collect PAN and Aadhaar of the director.

 For the company before filing for a resignation: Receive a written resignation letter. Note the date of receipt.

 For the director filing a form: Write a resignation letter and submit it to the company. Keep proof of delivery.