Nominee Director

Need for Nominee Director(s):

To cope up with the changing needs of business environment and to make sure that the operations of company are not compromised due to lack of funds, majority of companies are moving towards loan procurement from the Financial Institution(s) / Banks for supporting there business decisions.

We further come across various scams wherein the companies take certain decisions which become detrimental to the interest of Financial Institution(s) / Banks and indirectly affect the interest of general public.

Referring to such scams the Financial Institution(s) / Banks these days before approving the loan applications of the Borrowing Company, appoint Nominee Director(s) on the board of Borrower Company to safeguard there interests. This is done to ensure that none of the decision taken by the board has results unfavourable to the interest of the Financials Institution(s) / Banks and thereof public at large.

 

Definition of Nominee Director under Companies Act, 2013:

Explanation to Section 149 (7) of the Companies Act, 2013 defines “nominee director” as a director 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 any Government, or any other person to represent its interests.
It is also to be noted that the Nominee Director cannot be treated as Independent Director in a company {Section 149(6) of the Companies Act, 2013}.

Section 161(3) authorizes Board to appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government company.

Furthermore, the Debenture Trustees are also required to appoint nominee directors on the board of company to protect the interests of the debenture-holders and redress their grievances {Rule 18(3)(e) of the Companies (Share Capital and Debentures) Rules, 2014}.

 

To Conclude:

  • Appointment of Nominee Director on the board of company is the decision of Nominating Authority and not of Board of Directors or Members.
  • Nominee Directors are not liable to retire by rotation. They can only be removed by the authority appointing them.
  • Person appointed as Nominee Directors need to fulfil his responsibility towards the Nominator and is required to supervise the functioning of the subject company.
  • Nominee Director can participate in the matters involving interest of the Nominating Authority.
    The fact that nominee director is “interested” in matters involving interest of nominating authority cannot debar him to participate in such matters because the whole idea of appointing nominee director is to protect the interest of Nominating authority.

 

 


 

Contact PKP Nominee Director

Contact Person : Mr. Prakash k Gupta

Email - pgupta@pkpconsult.com

Telephone Numbers : +91-11-23382207/ 23388753

Mobile Number : +91-9811031841