Relationship between employer-employee is an employment contract that comes into force when the employee joins the company. This contract ceases on completion of his/her last working day. This is applicable irrespective of the designation. Now in your case, if MD was paid employee and has resigned with immediate effect, then the employer-employee relationship has ended. However, if the same persons wishes to be adviser then you to make a separate contract agreement mentioning clearly the terms and conditions of this contract. He will be paid consulting charges against his invoice.
Notwithstanding my reply above, by reading the your post a doubt will creep into the mind of readers of this post. Yours is too basic query. How come the members of the board could not solve it? Secondly, how come even MD did not know that in what capacity he will work after resignation? What is your designation? Have you been freshly passed from the college?
From India, Bangalore
Keeping an employee away from his normal duties, while he is serving his notice period is called as " Garden Leave" or "Gardening Leave". It can be as per the terms of the contract of employment or policy of the organization. Even when an employee holding a position of high responsibility resigns his job with an intention of joining a competitor or fired by the management for whatever reason as per the exit clause of the contract of employment, he can be divested of his responsibilities and asked by the management to serve his entire notice period with or without any other work. That was what done by Ford.Jr, the Chairman of Ford Motor Company when he fired its President Lee Iacocca in 1978 and by the management to the resigning M.D in the case on hand, of course, with some dignity.
The important point is that the contract of employment remains still intact thus entitling the outgoing employee on notice period to all employment benefits. Its moral effect depends upon the situation like that of on the employee's willful exit or exit at the instance of the management due to reasons like redundancy of the position or an unceremonious firing but generally it would be the strict compliance of the notice period clause of the contract of employment.
From India, Salem
Unless the Employer accepts the Resignation and clearly communicates in writing the Acceptance of Resignation, in writing signed by an Authorized Signatory, Resignation Request stay a Request.
On receipt of Resignation Letter/Notice/Request from any Employed Person on the Muster Rolls of the Establishment, the Employer considers the same and takes a decision in view of the exigencies of Work and then Communicates, in writing the said Decision mentioning the Effective Date of Acceptance of Resignation and such ensuing action as, inter alia, relieving Letter. The intent and purpose of such a Resignation need to be diligently looked into to ascertain the cause of such a "Transition" as it were, in the interest of the Business Organization.
From India, Delhi
The question over here is a resignation by Managing Director.
In my view, a person appointed as a Managing Director of a company registered with ROC is not necessarily an employee of the company. In general parlance, Managing Director is a Master or employer and not a servant or employee.
Appointment of Managing Director governs by the provisions of Company Act 1956.
If company enters in to a service contract with any person as a Director or a Managing Director and the terms of this contract make the Director or Managing Director is an employee under usual common law test, then only such Director or Managing Director becomes as employee. Such persons governs by the provisions of the service contract entered in to.
The Board of Directors can accept the resignation of any Director or a Managing Director with immediate effect and follow the due process under the Company Act 1956. The Board of Directors can appoint any competent person on its advisory board. The Board of Directors should pass a resolution every such eventuality.
From India, Mumbai
In the instant case the tenure of the person will continue till end of notie period. He is entitiled for his salary for those period of notice (what the postion may be holding). Allowing notice period by BOD means he is part and parcel of the company till end of his notice tenure.
From India, Mumbai
I would rather request you to kindly consult any Company Secretary and find out the correct answer to the question in this topic.
I am suggesting this so that more clarity will come in this topic and no wrong picture is given to the fraternity.
My humble submission is I stand with my answer.
From India, Mumbai
Very nice to interact with you, in fact, after a very long interval. I am quite unable to find any inconsistency between the posts of Mr.Prabhat Ranjan and yourself in so far as the position of a Managing Director under the Companies Act,2013 as a director and an employee of the company as well. In terms of the Companies Act,2013, particularly juxtaposing the definitions of the terms " Key Managerial personnel " u/s 2(51), " Manager " u/s 2(53) and " Managing Director " u/s 2(54), we can conclude that a M.D plays dual role for his Company (1) as a director and (2) as an employee i.e as a manager. Generally, a company enters into a service contract with the M.D for his appointment and terms of remuneration and as such it is certainly a contract of employment.
Here in the given case, the outgoing M.D chose the option of playing the advisory role till the completion of notice period stipulated in the contract of employment which is still alive though his resignation has been accepted by the B.O.D. That's how I was compelled to bring in the concept of " Garden Leave " into the episode and hold that he is entitled to the salary already agreed upon as he is at par with other employees of the company.
From India, Salem
It is very nice to interact with you too sir.
Appointment and resignation of Managing Director or Director is a subject matter of Company Act. I repeat what I said earlier that the Managing Director is not necessarily an employee of the company.
Managing Director means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a Director occupying the position of Managing Director, by whatever name called.
Resignation by Managing Director or any other Director primarily depends on the terms of his appointment. There is a noting of resignation of Managing Director or Director in duly convened Board Meeting as per Secretarial Standard -7.
Section 168 of the Companies Act, 2013 regulates the procedure for resignation of Managing Director / Director.
Section 168 (2) deals with effective date of resignation which says the resignation of a Director including Managing Director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the Director or Managing Director in the notice, whichever is later.
Under the above circumstances, in my view the company is right in accepting the resignation letter with immediate effect.
As I said earlier, it is company's prerogative to appoint any competent person on its advisory board. Appointment on advisory board is a separate contract, may be a contract of service or contract for service.
Though I am not expert in Company Law, I studied it. I was a Managing Director in one of the Companies. I resigned form that company as Managing Director to get COP as an advocate. I was / I am holding shares in that company.
From India, Mumbai
I wish to simplify the conversation. There is a settled principle of law that in case any Director/ Managing Director/ Executive Director is being paid the salary vide the Muster Role of the company, then in turn inspite of his designation, he shall be entitled to the benefits he was last drawing at the time of resignation.
However, in case the management is of the opinion that he should be given an advisory post, that shall be an additional charge with or with any extra benefits.
Hope the above information suffices.
Thanks in anticipation
Shamsheer Pal Singh Dhillon
Paramount Polish Processors Private Limited
From India, Mohali