Is a Director Liable After Resignation?

It is often assumed that a director’s responsibilities and liabilities end once the director resigns and the necessary filings are made with the Registrar of Companies (“RoC”). However, resignation does not necessarily create a complete break from past obligations. While resignation brings an end to the tenure of the individual as a director, it does not end or terminate the liabilities or responsibilities arising from actions taken during that tenure. Directors shall continue to remain accountable for decisions, approvals, and obligations undertaken during the tenure. Accordingly, even after a resignation becomes effective and is recorded with the RoC, the director may still face legal scrutiny or enforcement in relation to conduct or commitments made during the period of directorship.

A series of decisions of the National Company Law Tribunal (“NCLT”) and the National Company Law Appellate Tribunal (“NCLAT”) clarify that resignation only ends a person’s tenure as director. It does not automatically extinguish liabilities arising from actions taken during the period of directorship.

Statutory Framework: Resignation Does Not Remove Past Liability

As a general legal principle, resignation brings an end to the tenure of a director, but it does not undo actions or decisions taken while holding office. Directors continue to be subject to obligations under the Companies Act, 2013. Unlike the Companies Act, 1956, which did not expressly codify fiduciary duties, the Companies Act, 2013 formally recognises directors’ fiduciary duties and statutory obligations.^[1] Section 168(2) of the Companies Act, 2013 clarifies that a director’s resignation does not relieve the director from liability for acts that occurred during the period of office.  As a result, directors may face legal scrutiny for decisions taken during their tenure, even after their resignation has taken effect.

Continuing Contractual Obligations: The Subhash Aggarwal Case

The NCLAT recently considered whether resignation from directorship releases a person from obligations arising under a personal guarantee executed during the period of service.^[2] In this matter, Mr. Subhash Aggarwal had executed a personal guarantee in 2009 in favour of the company’s lender. Although he resigned as director in 2012, the guarantee was never revoked.

When the corporate debtor defaulted on its obligations, the financial creditor initiated proceedings against Mr. Aggarwal under Section 95 of the Insolvency and Bankruptcy Code, 2016 (“IBC”). The NCLAT held that resignation from the board did not terminate the personal guarantee. Since the guarantee remained valid, Mr. Aggarwal continued to be liable for the guaranteed amount, which was approximately INR 3.84 crore. The decision illustrates that contractual obligations undertaken during a directorship may continue independently of the directorship itself.

Fraudulent Trading and Absence of a Look-Back Limitation

In another matter involving Chamber Construction Private Limited, the NCLAT examined the liability of former directors in proceedings under Section 66 of the IBC.^[3] The tribunal directed the former directors to contribute approximately INR 36.53 crore to the corporate debtor’s assets after finding that certain transactions had been structured in a manner that diverted funds from the company. The directors argued that they had already resigned from the company. The tribunal rejected this defence and noted that Section 66 of the IBC does not prescribe a specific statutory “look-back” period that would prevent the tribunal from examining past conduct where fraudulent trading is alleged. The ruling indicates that resignation does not shield directors from liability for fraudulent or wrongful conduct during their tenure.

Effect of a Properly Executed Resignation

While tribunals have continued to hold directors responsible for pre-resignation conduct, they have also recognised limits on liability after resignation.^[4] In a case involving Aditya Ultra Steel Limited, the company attempted to impose obligations on former directors through a memorandum of understanding executed several months after they had resigned. The Tribunal^[5] held that former directors cannot be bound by agreements or arrangements entered into post their resignation. Once a formal and valid resignation is tendered by the director, new liabilities cannot be imposed through subsequent corporate actions. This reiterates the difference between liabilities arising before resignation and obligations created post resignation.

Importance of Filing Form DIR-12

Delays in filing Form DIR-12 with the RoC can sometimes result in discrepancies in public records regarding the tenure of a director. Such delays may lead to disputes regarding responsibility for corporate actions or regulatory violations during the period in which the resignation has occurred while the public record was not updated. Courts in India have held that once a director has validly resigned and there is no evidence linking them to the transaction in question, they cannot be held vicariously liable for future offences.^[6] This re-affirms the principle that liability must be connected to the actual period of involvement in the company’s management.^[7]

References

[1] Companies Act, 2013.

[2] Subhash Aggarwal v. State Bank of India (Company Appeal (AT) (Insolvency) No. 512 of 2024).

[3] Anubhav Anilkumar Aggarwal v. Rajendra Kumar Girdhar (Resolution Professional of Chamber Construction Private Limited), Company Appeal (AT) (Ins) No. 1277 of 2024.

[4] Muljibhai Karamshibhai Patel v. Aditya Ultra Steel Limited (NCLT Ahmedabad Bench, 2025)

[5] Muljibhai Karamshibhai Patel v. Aditya Ultra Steel Limited (NCLT Ahmedabad Bench, 2025)

[6] Harshendra Kumar D v. Rebatilata Koley, (2011) 3 SCC 351.

[7] Anita Malhotra v. Apparel Export Promotion Council, 2012 CLC 89 (SC).

‍