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Appointment of Nominee Director

Nominee Director

Appointment of Nominee Director

A Nominee Director is a director in a company who has been appointed by financial institutions, banks or investors to form part of the Board of Directors. Appointment of nominee directors is governed by and subject to the provisions of the articles of association of the company. In this article, we briefly discuss the concept of the Appointment of a Nominee Director.

Purpose of Nominee Director

A nominee director is nominated to ensure that the interests of the financial institution in question are adequately safeguarded. Also, the nominee director is appointed to perform the duty towards the borrower company and its stakeholders. The nominee director will be liable for the institution or investor and also monitors the activities of the borrower company or investee.

Conditions for appointing the Nominee Director

The following are the conditions for appointing the nominee director under companies act:

  • When a financial institution contemplates the appointment of or decides to appoint a nominee director, the appointment should be made in pursuance of any law or terms of an agreement entered into by the company.
  • The appointment of the director can be made by the Central/ State Government or by any other person in whom the authority is vested according to the relevant legal provisions.
  • The person appointed as a Nominee director should represent the interests of the organisation or institution in which he is appointed.

Nominee Director of Financial Institutions

In a case where the nominee director is appointed in financial institutions which are incorporated under the companies act, there is a need to comply with the provisions of the companies Act. The nomination can be made if there are provisions in the Article of Association (AOA) of the company. Moreover, the nomination should conform to the provisions of the Companies Act, 2013. The nomination is limited only to one-third of the total number of directors of the investee company.

Nominee Director of Special Financial Institutions

In case of nominee directors of the financial institution established under a special act of parliament notwithstanding with the provisions of Companies Act and the Articles of Association (AOA) of assisted companies, the company has to take note on such appointment at a board meeting and file the necessary particulars of the directors in Form DIR-12. The nominee of the banks IDBI, IFCI, LIC, SFCs, and UTI can be appointed directors on the board of assisted companies, even without complying with the provision of articles of association or Companies Act, 2013.

Procedure for Appointment of Nominee Director

Before appointing the nominee director, follow the procedure given below:

Step 1: The verification has to be made whether the article of the company holds the authorisation to appoint the nominee director as per the provision under the companies act, 2013.

Step 2: In case if the article does not provide authorisation in such a case, the company has to alter the article to authorise the company to appoint the nominee director.

Step 3: Further, a nomination letter has to be obtained from the nominee director who is nominated for appointing as a nominee director.

Step 4: Now, check whether the respective person has a Director Identification Number (DIN) along with the DIR-3.

Step 5: After verification of DIR-3, check whether the consent in writing to act as a director in form DIR-2 has been obtained from the proposed director.

The following are the documents to be attached along with the DIN:

  • Copy of identity proof of the applicant
  • Copy of address proof

Step 6: Intimation by the proposed director in form DIR-8 should be provided in which he/she is not disqualified as per section 164(2) of the companies act, 2013.

Step 7: The Board of Directors should pass the resolution for approving the appointment of the nominee director at the board of meeting after giving notice to all the directors. Such notice to be issued to the directors within seven days from the date of the meeting. The below following are the important points to be remembered before conducting the meeting.

  • Disclosure of the agenda of the meeting
  • For conducting a board meeting, pass a board resolution to appoint a nominee director under section 161(3).
  • Authorising the company secretary in case of absence of the company secretary
  • Providing authorisation to sign the respective documents and to file the same to the Registrar of Companies (ROC).

Step 8: The form DIR-12 has to be filed with Registrar of Companies as a return of appointment within 30 days prior from the date of passing the board resolution.

The documents required to be attached with DIR-12 are given below:

  • The details of the Nominee Director along with DIN.
  • The consent of the Nominee Director
  • The true certified copies of the Board resolution passed for the appointment of the Nominee director.
  • The letter of documents and other ancillary details as required

Step 9: After the appointment, the disclosure is required to be obtained, i.e. the nominee director should inform the other companies that he is the director in form MBP-1 about the appointment.

Taxpayers should note that MBP-1 should not be filed before the date of appointment as the nominee director. However, in case of no disclosure on the part of the director, in such case form, MBP-1 will be collected.