Module: | Statutory Audit, NFRA & ICAI Standards
Q55: Consider the following statements regarding the regulatory requirements when an Independent Director resigns from the board of a listed entity:
1. The listed entity must disclose the detailed reasons for the resignation to the stock exchanges within seven days of the resignation.
2. The resigning Independent Director must provide a mandatory written confirmation that there are no other material reasons for resignation other than those provided.
3. If an Independent Director resigns before completing their term, they are strictly prohibited from being appointed as an executive director in the same company or its subsidiaries for a period of one year.
Which of the above statements is/are correct?
2. The resigning Independent Director must provide a mandatory written confirmation that there are no other material reasons for resignation other than those provided.
3. If an Independent Director resigns before completing their term, they are strictly prohibited from being appointed as an executive director in the same company or its subsidiaries for a period of one year.
Which of the above statements is/are correct?
✅ Correct Answer: D
🎯 Quick Answer:
D. All statements 1, 2, and 3 are correct.Structural Breakdown: Statement 1 is correct; a 7-day timeline is enforced for full disclosure.
Statement 2 is correct; this mandatory confirmation prevents directors from giving vague, polite reasons (like "personal commitments") when they are actually fleeing a toxic or fraudulent board.
Statement 3 is correct; the one-year cooling-off period prevents the compromising of independence through the promise of lucrative executive roles.
Historical/Related Context: Between 2018 and 2021, hundreds of independent directors abruptly resigned from defaulting companies right before the financial collapse became public.
SEBI updated the LODR regulations to force these directors to publicly state if they were resigning due to management disputes.
Causal Reasoning: The mandatory confirmation of "no other material reasons" legally corners the director.
If they sign it, and it is later proven they hid knowledge of a fraud, they can be prosecuted for false declarations, thereby forcing them to blow the whistle upon exit.