A Nominee Director is an individual nominated by an institution, like banks or financial institutions on the Board of Companies where these institutions have some interest. The interest of institutions can be in form of loans or investment into shares. A Nominee Director acts as a liaison between the Investee Company and the Nominator. The main aim for the Appointment of Nominee Director is to safeguard the interest of the borrower company. This article will discuss the Procedure followed for Appointment of Nominee Director.
What is a Nominee Director?
A Nominee Director is a Director appointed to the Board to represent the interest in the Company. The Appointment of Nominee Director is done by any law for the time being in force or by agreement or by Central or State Governments by its shareholding in Government Company. As per Section 161(3) and the Explanation of Section 149(7), A Nominee Director is nominated by any financial institution in pursuance of the provisions of any law for the time being in force or of any agreement, or appointed by Central Government or State Government, or any other person to represent its interest. Furthermore, as per the Rule 18(3) of the Companies (Share Capital and Debenture) Rules, 2014, it is the duty of debenture trustee to nominate a Director on the Board of the Issuer Company. The Nominee Director is independent to the nominee company and does not hold any shares in the Company. The Nominee director is not treated as an Independent Director. A Nominee Director, like any other Director, is bound by rules of confidentiality of the private Limited Company and cannot share any information with his/her Nominator.
What is the Rationale for Appointment of Nominee Director?
Safeguard the Interest of Nominator
The primary purpose of the Appointment of Nominee Director is to represent the interest of Nominator and safeguard the interest of Nominator. A Nominee Director monitors the activities, operations and development in the investee Company.
Conflict of Interest
The Directors are appointees of the shareholders in corporate democracy. Since a simple majority is needed to appoint the Directors of a Company. The ownership of the Company if have variegated interests, then it is essential to safeguard the interest of all Stakeholders. A lot of varied interests leads to the Appointment of Directors by the majority of stakeholders. Hence, the Directors appointed will be more concerned about the majority of stakeholder’s interest and disregard the minority stakeholder’s interest. Therefore, to resolve the issue Appointment of Nominee Directors is done. The Nominee Directors will ensure the majority appointed Directors will not hamper the interest of the Company and in particular the interest of the Nominator.
Read our article:Companies Act 2013 Provides a Procedure for Appointment and Resignation of the Directors
What is the Procedure for Appointment of Nominee Director?
- Ensure that the Articles of Association (AoA) authorizes for the Appointment of Nominee Director. Incase if the AoA does not allow for the Appointment then alter the AoA accordingly.
- The Appointment of Nominee Director can be done by passing a resolution in the Board Meeting. There should be notice sent to all the Directors about the Board Meeting to be held. Following requirements are to be fulfilled while sending a notice to the Directors:
- Further, a Board Meeting will be held, and a Resolution for the Appointment of Nominee Director will be passed.
- After the Resolution is passed, the Company Secretary or any of the Directors will sign the relevant documents and file it with Registrar of Companies (RoC).
- The Appointed Nominee Director has to submit a Declaration regarding his interest in other entities and should give his/her consent in writing.
- The details of the newly appointed Nominee Director should be filed with the Registrar of Companies (RoC) through DIR-12 form.
The Pre-requisites of DIR-12 Form are:
- After the Appointment of Nominee Director, he should make a disclosure in MBP-1 Form about his Appointment as Nominee Director to the other companies in which he/she is working as a Director.
What are the Documents Required for the Appointment of Nominee Director?
- Directors Identification Number (DIN) of the Proposed Nominee Director
- Identity Proof of the Proposed Nominee Director
- Residential proof of the Proposed Nominee Director
- Permanent Account Number of the Proposed Nominee Director
- Letter of Appointment
- Certified True Copy of the Board Resolution
- Consent Form signed by the Nominee Director
A Nominee Director represents the interest of the organization which he represents. The process of the appointing a Nominee Director is not an easy task. We at Corpbiz have experienced and skilful professionals to help you in the process of Appointment of Nominee Director. Our professional will direct you and assist you in getting through the process of Appointment of Nominee Director. Our professionals will plan ideally and will make sure the successful completion of the process.
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