On the day Reliance Communications (RCom) announced the quarterly losses of Rs 30,163 crore, its chairman Anil Ambani resigned as the director of the insolvent telco, which effectively meant resignation from chairmanship as well. Prior to and along with Ambani, five other directors of RCom had also resigned from the telco, including Ryna Karani, Chhaya Virani, Manjari Kacker, Suresh Rangachar and Manikantan V.

The committee of creditors (CoC) has rejected the resignations saying these cannot be accepted. It asked the directors, including Ambani, to perform their duties until the insolvency proceedings are concluded. However, the resignation of the other director Manikantan V., who had put in his paper on October 4, was accepted and Viswanath Devaraja Rao replaced him as director and CFO (chief financial officer).

But why did CoC reject the resignation of Ambani and four other directors? Do they have the powers to do so and how? The company law experts say that working directors or wholetime directors can be removed or resign as per the terms of their appointment, which is subject to the approval of the board. But since RCom has been admitted for insolvency, the power of the board ceases to exist, and those powers are now vested with the (RP) resolution professional (Anish Nanavaty of Deloitte). Through RP, the CoC has the authority to accept or reject resignations of the wholetime directors.

However, that is not the case with independent directors who can resign at any time without needing a formal approval from the board or CoC.

“While the execution is done by RP, the ultimate powers are with CoC. In case of RCom, as the board has no powers, the CoC is the decision-making agency currently. The executive directors have a contractual obligation, and they simply cannot walk out of the company,” says Manoj Kumar, partner and head (M&A and insolvency) at Delhi-based Corporate Professionals.

The reason why CoC rejected the resignation of RCom directors is because these directors are required to attend the meetings while insolvency proceedings are underway. While they are not allowed to vote in those meetings, they are supposed to provide clarifications when sought by the CoC. If these directors are no longer holding a title in the company, they cannot be invited in the CoC meetings. Once they demit the (director’s) office, they can argue that they are no longer associated with the company. So it seems logical that CoC rejected the directors’ intent to exit the telco.

“If there’s a need for any clarification, the committee member may ask the directors. It’s a basic understanding that they should cooperate in the process, and whenever they are called, they should come and attend the meeting. The general stand is that after the company is admitted to insolvency, none of the directors should be allowed to demit the office, otherwise the purpose of insolvency gets defeated. That is the stand which might have been taken by RCom’s CoC. That is a legal position, beyond that nothing is written neither in the company law or nor in the IBC (insolvency and bankruptcy code),” says a company law consultant.

There have been similar instances in the past. In 2017, for instance, two of the insolvent Amtek Auto directors had resigned from the board, but they were brought back later to ensure that they continue to handle operations. RCom, which posted record net losses of Rs 30,163 crore in the second quarter of 2019/20 owing to provisioning for AGR (adjusted gross revenues) dues, is going through insolvency proceedings after it failed to find a buyer for its assets.

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