Mr Birla, who has a net worth of $14 billion according to Forbes, will be replaced by Aditya Birla Group-nominee Himanshu Kapania as non-executive chairman, Vodafone Idea said in a stock exchange filing on Wednesday.
Vodafone Idea has declined to comment on why Birla sought to step down, and representatives at the Aditya Birla Group did not immediately respond to an email from Reuters.
The shares have nosedived around 40 per cent in the past three sessions alone. The shares plunged 27 per cent in the previous two sessions after Mr Birla offered to hand over his stake in the company to the government or "any other entity that the government may consider worthy to keep the company operational."
Investors were not willing to invest in the company in the absence of clarity on AGR liability, an adequate moratorium on spectrum payments and most importantly floor pricing regime above the cost of service, Mr Birla had said in his letter.
Vodafone Idea's problems centre around the computation of adjusted gross revenues (AGR). According to the Department of Telecom, Bharti Airtel owed more than Rs 43,000 crore as AGR dues, while Vodafone Idea's balance payment exceeded Rs 50,000 crore.
The Supreme Court last year gave the telecom companies 10 years until 2031 to clear the dues after missing a January deadline. The two companies approached the Supreme Court seeking corrections of what they called errors in the government's calculations of dues, but the top court rejected the plea.
Telecom companies pay a percentage of their revenues as license fees to the government. According to them, non-core businesses such as rent, income from sale of handsets or roaming charges should not be included in the revenue of which they pay a percentage - they only wanted to pay on revenues earned from their core business.
Moreover, Vodafone has been struggling to compete with the likes of Bharti Airtel and the Mukesh-Ambani controlled Reliance Jio in a market that witnessed the cheapest call and data rates globally, till very recently.
As of May 31, Vodafone had 277.6 million wireless subscribers, a distant third to rivals Reliance Jio and Bharti Airtel, with 431.2 million and 348.3 million, respectively, data from India's telecoms regulator showed.
At 11:40 am, Vodafone Idea shares were trading at Rs 5, weaker by 11 per cent, on the BSE.
Vodafone Idea shares tumbled as much as 24 per cent on Thursday, a day after the troubled telecom operator's board accepted Kumar Mangalam Birla's request to step down as non-executive chairman. Mr Birla had engineered the merger of Idea Cellular, which was part of his Aditya Birla Group, and the Indian operations of Vodafone in 2018 to form Vodafone Idea, creating what was the country's largest telecom operator at that time.