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Nominee Director is a director appointed by the financial institutions or banks in the Board of Directors, subject to the provision of the article of association. The Board may appoint a director nominated by any institution in pursuance of the provision of any law for the time being in force or of any agreement or by the Central Government/state government under its shareholding in a government Company.
A Nominee Director is appointed for representing and safeguarding the interest of the financial institutions or investors on the board of the Borrower Company. The Nominee Director is appointed to perform the duty towards the Borrower Company and its stakeholders. The appointment of Nominee Director is generally made at its terms, and his office is liable to retire by rotation unless otherwise provided in the shareholder’s agreement. The Nominee director acts as a watchdog for the Institutions or investors and also for monitoring the activities of the Borrower Company.
a) The nominee director should be nominated by any financial institution in pursuance of any law or terms of an agreement entered into by the company.
b) The appointment of the director by the Government or by any other person.
c) The person appointed as a Nominee director shall represent the interests of the organization /Institution which he represents.
Nominee director of Special Financial Institution-In case of appointment of nominee directors of financial institutions established under Special Acts of Parliament having non-obstante provisions over the provisions of Companies Act,2013 and the articles of association of assisted companies, the company has to only take steps to note such appointment at a Board meeting and file the particulars of the directors in Form No. DIR-12.
For example-Nominee of the banks IDBI, UTI, IFCI, LIC, SFCs etc. can be appointed directors on the boards of assisted companies, even without complying with the provision of articles and/or companies Act,2013.
In the case where the nominee director is appointed in other financial institutions which are incorporated under the Companies Act,2013, the provision of the Companies Act 2013 are to be complied with. The nomination can only be made if there are provisions in the article of association of the assisted company. Further, the nomination conforms with the provisions of the Companies Act, 2013. The nominee director should come within 1/3rd of the total number of directors, the other 2/3rd being liable to retire by rotation.
The following procedure is required to be followed before appointing the Nominee director
1. Check whether the article of the company contains the authorization to appoint the nominee director as per the Companies Act 2013. In case, if the article does not provide the same, alter the article to authorize the company to appoint the Nominee Director. A nomination letter is received in favour of the appointee Nominee director.
2. To check whether the respective person has a DIN along with DIR-3.
3. To Check whether the consent in writing to act as a director in form DIR-2 has been taken from the proposed director.
4. Intimation by the proposed director in form DIR-8 that he is not disqualified u/s 164(2) of the Companies Act,2013.
5. The Board of Directors may by passing the resolution may approve the appointment of the Nominee Director at a Board meeting after giving notice to all the directors. The notice shall be issued to the directors not less than 7 days before the date of the meeting.
6. File form DIR-12 with ROC as a return of appointment within 30 days from the date of passing the Board resolution.
DIR-12 attachment list-
After the appointment, the disclosure is required to be made, i.e. the Nominee director shall inform the other companies in which he is the director in form MBP-1 about the appointment.
Also, Read: Types of Board of Directors As Per The Companies Act 2013.
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