Smith resigned citing "an irretrievable breakdown in the working relationship with the Board and alleging that he was forced to resign. He also indicated that he would institute legal action to claim damages...," Cipla Medpro, which has a tie-up with India's Cipla Ltd, said.
He resigned on the eve of his disciplinary hearing, which was due to start on Monday, it added.
The Board would defend the action, it said in a statement issued through the Johannesburg Securities Exchange, which also listed a range of charges against Smith that it said it had withheld earlier to avoid prejudicing Smith's disciplinary hearing.
The list of more than 20 charges that were put on Smith, included allegations of gross misconduct, dishonesty and serious breaches of his fiduciary duties through paying himself bonuses of R3.6 million over two years without the permission of the Board.
The statement also said Smith gave himself an increase in salary of almost double that recommended by the Board and abused the company's facilities for private gain.
The Board said all the allegations contained in the statement had been identified through a forensic audit conducted by auditors SizweNtsalubaGobodo Inc.
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Smith established Medpro Pharmaceutica in 1993 -- one of the country's first generic medicine companies as the industry opened up in South Africa. The company became one of the top three after Smith tied up a deal with India's largest generic medicines manufacturer, Cipla.
While some analysts here felt that Smith's departure would negatively impact Cipla Medpro, Chairman Sibusiso Luthuli said the agreement with its Indian supplier, which has no stake in the South African company, would not be affected.
Cipla Medpro and Cipla India were also at the centre of a controversy in 2009 regarding the 20-year pipeline agreement between them when South African drugs manufacturer Adcock Ingram launched a hostile takeover bid for Cipla Medpro.
The Johannesburg Securities Exchange was poised to investigate whether the termination of the supply pipeline to Cipla Medpro by Mumbai-based Cipla India was previously disclosed to the market after Adcock Ingram shelved its plans to acquire Cipla Medpro, largely based on the threat by Cipla India to terminate the 20-year exclusivity agreement if there was a change in its management.